MAS has already expended significant effort and resources to better understand the nature, function, and practical operation surrounding the possibility of a digital currency issued by our central bank. Based on public documents issued by the Economic Policy Group, the conclusion is—to somewhat oversimplify—that Singapore is ready for a digital Sing dollar. However, there is no “pressing need” for its issuance at this time.[1]
Additional advantages to moving earlier on a digital Sing dollar
MAS has documented a host of advantages associated with ultimately adopting a digital Sing dollar.
But there are several additional advantages to moving earlier on issuance. First, doing so could help crowd out alternative, volatile digital private currencies, especially low-value meme cryptocurrencies that have been an outlet for speculative excess.[2] Second, a digital Sing dollar will allow for the application of more innovative monetary policy, especially with regard to dealing with disinflation. While inflation is the current worry, it is not difficult to conceive—with global depopulation, deglobalization, and declining productivity—of the possibility of a reversal to a low-inflation environment a few years down the road. It will take at least a few years to roll out the digital currency, making it available to help mitigate the problem of the zero lower bound to nominal interest rates.[3] And third, a digital Sing dollar—especially one that is trackable by MAS—would help reduce incidence of counterfeiting and being used for illicit activities, especially given the largest-denomination bill that MAS still mints is still a relatively-large $1000.[4]
Practical considerations
That said, there are some additional practical concerns, for which it would be useful for this House to better understand. First, to what extent has global best-practices in payments innovation, such as those studied in the collaboration between the Federal Reserve Bank of Boston and MIT’s Project Hamilton Digital Currency Initiative,[5] incorporated into the MAS’s own background study? Second, what are the main inhibitions that MAS holds that prevents sooner issuance? And third, if there is no urgent issuance, what might be the anticipated timeline for a digital Sing dollar?
[1] Economic Policy Group (2021), A Retail Central Bank Digital Currency: Economic Considerations in the Singapore Context, Singapore: Monetary Authority of Singapore.
[2] Of course, the opposite—where the additional liquidity provided by an official benchmark could turn out to further Singapore’s position as a hub for digital asset trading, especially with regard to cryptocurrency platforms.
[3] MAS proposes a two-tier system of rates, allowing for the second tier to be negative, following Bindseil, U. (2020), “Tiered CBDC and the Financial System,” ECB Working Paper Series 2351, Brussels: European Central Bank.
[4] Higher-denomination notes, such as the $10,000 bill, remain in circulation, albeit is no longer issued by the MAS. In contrast, the largest denomination dollar, euro, and pounds in broad circulation are $100, €500, £50, and ¥10,000, respectively, all broadly equal to USD 100. The Swiss National Bank does print a CHF 1,000 note. See Rogoff, K. (2015), “Costs and Benefits to Phasing Out Paper Currency,” NBER Macroeconomics Annual 29: 445–56.
[5] FRB Boston and MIT Digital Currency Initiative (2022), Project Hamilton Phase 1: A High Performance System Designed for Central Bank Digital Currencies, Boston: Federal Reserve Bank of Boston.