The Monetary Authority of Singapore (MAS), the de facto central bank of the country, announced on October 5 its intention to explore three different software models of Distributed Ledger Technology (DLT) as part of its ongoing research into the potential financial applications of blockchain.
The concept of blockchain in finance refers to a permanent, unchanged ledger of of all cryptocurrency transactions. This is the same technology that enables bitcoin. Essentially, it is a series of records referred to as blocks. Every time a transaction occurs, another block is added to the chain. A complete copy of all of these blocks is recorded and held by the entire network of users. As a result, if an individual actor attempts to cheat the system and conduct a transaction not properly supported by records, all users on the network will know.
The development announced by the MAS aligns with the country’s goals of fostering technological innovation as a means to maintain economic growth. Singapore has recently run into problems maintaining its relative advantage as a place to do business as neighbouring countries have developed. The government’s hope is that by making Singapore the Silicon Valley of Asia, it will be able to reap the early-adopter benefits of emergent technology.
According to a report commissioned by the MAS and produced by Deloitte, the announcement regarding the three models of DLT comes as a second phase to Project Ubin, a program intended to provide proof-of-concept for a tokenized version of the Singapore dollar (SGD), or in other words, a digital representative of the SGD that could be used for domestic interbank transfers. During this initial phase, the Singaporean central bank declared this token as SGD-on-ledger and allowed the token to settle debts between banks on a private central bank controlled network. The bank announced the successful conclusion to this phase on March 9.
In this most recent development, a consortium of 11 financial institutions and five technology companies, along with the MAS, claimed to develop three different software models that “implement decentralised netting of payments in a manner that preserves transactional privacy.” The same press announcement goes on to assert that “existing netting programmes used in interbank payments rely on a single payment queue visible to the operator…decentralising the queue, however, potentially exposes payment details to an unauthorised party.” The central bank asserts that the new software models allow for a combination of both privacy and decentralisation.
The adoption of this project is significant because the MAS holds a respected reputation among central banks. The MAS testing of technologies such as blockchain, has wider implications, in that if it results in successful outcomes, other regional and international banks may attempt to replicate the DLS project. Singapore could be a catalyst in bringing a world operating with digital currency closer to reality.