Digital Assets Could Become ‘Permanent Feature’ of Finance, Singapore Central Banker Argues

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June 26, 2023

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Digital assets could become “a permanent feature of the financial landscape,” although decentralized cryptoassets like bitcoin (BTC) “fail as money,” Singapore’s central bank director has argued.

Writing in a new opinion piece published by the International Monetary Fund (IMF), Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), admitted that he can see a future where digital assets – mainly stablecoins and central bank digital currencies (CBDCs) – co-exist with the current system, and even become a “permanent feature” of it.

“Traditional fiat currencies will continue to dominate, but securely backed private stablecoins and wholesale CBDCs could be expected to play an important role in cross-border payment and settlement,” Menon wrote.

He went on to explain that so-called retail CBDCs – CBDCs meant to be used by individuals – could potentially emerge as “a small component of the monetary base—similar to the role played by cash today,” despite the case for them being “less strong.”

The reason for this, according to the Singaporean central banker, is that the difference between central bank money, which today is understood as physical cash, and commercial bank money held as bank deposits, is of little concern to most people. 

“As long as people trust that their money is safe and that central banks stand ready to backstop the system during crises, direct access to public money may not be necessary,” he said.

Cryptocurrencies ‘fail as money’

Meanwhile, Menon said about so-called “private and unbacked” cryptocurrencies like bitcoin that they “fail as money.”

“They perform poorly as a medium of exchange, as a store of value, and as a unit of account,” the central banker said, noting that many cryptos – in his view – “are really utility tokens that represent a stake in blockchain projects.”

Cryptos are “actively traded and heavily speculated on,” Menon continued, noting that their prices are “divorced from any underlying economic value on the blockchain.” He added that the volatility of most cryptos “rules them out as a viable form of tokenized currency or investment asset.”

No CBDC in Singapore…yet

Commenting on the potential for a retail CBDC to be launched in his homeland Singapore, Menon made it clear that the organization he leads remains skeptical.

“MAS believes that the case for a retail CBDC in Singapore is not compelling for now, given well-functioning payment systems and broad financial inclusion,” he wrote. 

He added that the existing payment system is already “fast, efficient, and cost nothing, while a residual amount of cash remains in circulation and is unlikely to disappear.”

Despite this negative stance, Singapore is building out the necessary infrastructure for a retail CBDC “should conditions change,” the MAS director wrote.
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