The Monetary Authority of Singapore (MAS) has proposed a common protocol specifying conditions for the use of digital currencies as financial institutions get ready to trial what MAS calls purpose-bound money (PBM).
The PBM protocol is meant to work with different ledger technologies and forms of money, according to MAS. This will enable users to access digital money using their preferred wallet provider.
Digital money includes central bank digital currencies (CBDCs), tokenised bank deposits, and stablecoins on a distributed ledger.
MAS has published a whitepaper on this, developed in collaboration with the International Monetary Fund, Banca d’Italia, Bank of Korea, financial institutions and fintech firms, detailing the technical specifications on the lifecycle of PBMs from issuance to redemption.
It also specifies business and operating models for how arrangements could be programmed to ensure money is transferred only on fulfilment of service obligations or terms of use.
Pilot Trials
Financial institutions and fintechs are soon launching pilot trials to test the usage of PBMs for online commerce and programmable rewards.
In this regard, Amazon, FAZZ and Grab are collaborating on a pilot use case involving escrow arrangements for online retail payments. This would allow payment to be released to the merchant only when the customer receives the items purchased, thus providing assurance to both parties, MAS said.
In another trial, DBS Bank, Grab, FAZZ, NETS and UOB, will trial the use of PBM-based cashback and other incentives to improve consumer experiences.
This is expected to reduce friction faced by merchants, such as manual reconciliation of sales proceeds and time needed to onboard new sales campaigns.
MAS' Chief FinTech Officer, Sopnendu Mohanty, said “This collaboration among industry players and policymakers has helped achieve important advances in settlement efficiency, merchant acquisition, and user experience with the use of digital money."
The PBM whitepaper builds on MAS’ Project Orchid and aims to encourage greater research among central banks, financial institutions, and fintechs to understand the design considerations in the use of digital money.
For further development and learning, MAS has released the PBM source codes and software prototypes for public access.
"This will serve as a reference model to foster interoperability across different platforms," Mohanty said.
