Singapore taps potential in crypto, green economy

Singapore

SINGAPORE sees “significant economic possibilities” from a crypto or tokenised economy that can make cross-border payments cheaper and transform the way hard physical assets are traded – which was first paved by modern securitisation, said Monetary Authority of Singapore (MAS) managing director Ravi Menon.

This key part of digital infrastructure comes amid broader liberalisation in the financial sector. 

MAS has also discussed with Indonesia and Philippines to link up their real-time payment systems, in the same way it would with Malaysia, India, and Thailand, said Menon. 

The aim is to make such micropayments via each country’s equivalent PayNow, more efficient and cheaper.

In a wide-ranging interview with The Business Times, Menon said tokenisation developments hold promise that far outpaces the gains made from modern securitisation, which took root in the 1970s. 

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Tokenisation effectively allows users to hold and possibly trade a unit or a fraction of assets – both financial or non-financial ones – using the digital representation of these assets that range from parts of a private real-estate fund to art.

Blockchain technology allows for efficient verification of ownership and transfer of these tokens. 

Because the information embedded in these packets of data are encrypted to ensure security, these tokens are more widely known today as cryptos.

“Cryptos offer the prospect for monetising the value of so many things, because you can digitally represent them and effect a transfer of ownership. That has significant economic possibilities, so that is a space that we are quite excited about,” said Menon. 

“MAS is keen on the concept of crypto and putting in place the regulatory framework to encourage the growth of a crypto economy or tokenised economy and experimentation in this space.”

But for retail investors, MAS is no fan of cryptocurrencies, which the central bank will resist banning but are of concern given the speculation fever and the level of ownership here. 

Nearly 16 per cent of Singaporean adults own cryptocurrencies, a recent Finder.com survey showed. This is at a similar adoption rate with Hong Kong and Indonesia, and ahead of the global ownership average.

These numbers are of concern, said Mr Menon, noting that they are very risky from MAS’ view.

“We are equally concerned about retail investors going into cryptocurrencies purely as an instrument of speculative investment. There is no sovereign backing, and there is no inherent value in these cryptocurrencies. So they are very dubious for a retail investor,” said Menon.

“But just as we don’t have laws that forbid people from buying tulips as an investment instrument, we can’t stop them from investing in cryptocurrencies.”

He acknowledged the backlog of licence applications from crypto-related players, with MAS sieving through more than 400 applicants from digital payment token players seeking a licence under Singapore’s new Payment Services Act (PS Act).

The authority is seeing innovative models offered, but also wants to see that these players are fending off money-laundering risks. This means, among other things, that such payments should be ringfenced within licensing jurisdictions.

As a case in point, in September, Binance.com (the offshore exchange) was stopped from offering payments services. Users also could no longer transfer digital payments tokens from Binance.sg (a local platform meant to meet Singapore regulatory expectations). 

Binance Singapore had separately applied for a licence under the latest PS Act. But Binance itself had not applied for an MAS licence.

Asked about some crypto players who have gotten a licence despite not having a full crypto business up and running, Menon said that even if licensed players have not dotted the i’s and crossed the t’s, they are expected to have all safeguards in place at launch.

Blockchain is also driving the use of the central bank digital currencies (CBDCs). It is holding promise in tearing down the relatively high cost of cross-border payments that are prohibitive for businesses transacting in a global marketplace. 

Singapore is now working – via one of the Bank of International Settlements’ innovation hubs based here – with the central banks of Australia, Malaysia, and South Africa to test CBDCs for international settlements. 

The project, known as Project Dunbar, will aim to develop prototype shared platforms for cross-border transactions using multiple CBDCs.

With these multi-CBDC platforms, the hope is that financial institutions can transact directly with each other in the digital currencies issued by participating central banks – cutting the need for intermediaries, and by extension, the time and cost of transactions.

Menon pointed to the focus on the global stage to set targets around reducing the costs of cross-border payments, and having prompt payment settlements. The Financial Stability Board in October set out the G20 roadmap on this in a progress report. 

If done well, deploying CBDCs is just like having the engine under the hood of a car: businesses and consumers should not have to fuss with the technical mechanics of CBDCs so long as they see that their cross-border payments can be faster, cheaper and the flows can be tracked just as a parcel is shipped from a warehouse across the world to their doorstep. 

The technology rests on the ability to create a token version of a fiscal dollar, money backed by central banks. A blockchain may be able to speed up the verification and settlement process that has been held hostage by relatively more archaic technology.

At the Singapore FinTech Festival, MAS is also expected to give more details on its Project Greenprint, a platform MAS is using to spur on innovations in green finance. The attention comes amid pressure on the financial institutions to contribute to net zero financed emissions by 2050, with the United Nations COP26 summit this year as the current backdrop.

For now, there is no consensus on whether there should be a single platform for banks to make their disclosures on green finance and other forms of sustainability reporting. MAS’ Project Greenprint, as a platform to matchmake green investors to green projects, is being built up. 

That said, there is keen interest from financial institutions to use the platform to monitor commitments, said Menon. For example, if a company has issued sustainability bonds for a project, banks with their reputations on the line will need to monitor compliance so that green finance flows go to the right projects.

Menon pointed out that the challenges in the green finance space include collecting accurate data along the supply chain of activities, especially since data is also dispersed across different places. 

Technology can play a key role in gathering that data and putting it in a form that allows for better comparison. It can also help better track activities such as reforestation. 

MAS will also set out early next year its regulatory expectations on the disclosure standards that retail funds in Singapore with an ESG (environmental, social, and governance) investment objective must meet. With the enhanced disclosure in place, investors will be able to better understand the criteria that an ESG fund uses to select its investments.

ESG funds make up a growing investor class, but the danger is that as too many people pile on to these funds, these investments later turn out to be less green than they were made out to be. 

That situation dents credibility and trust, said Menon. Given this, MAS is very actively working towards developing suitable requirements, so that the investor knows exactly how the fund strategies contribute to a clear sustainable outcome. 

“There are significant challenges associated with ensuring credible green finance flows, because it’s very hard to define what is green. A large part of green finance is going to rest on trust and verification,” said Menon. 

“We are going to be careful in ensuring adherence to internationally reputed standards in green taxonomies. I think our trust premium comes not from developing the standards. Our trust premium comes from ensuring that whatever the international standard is, you can be assured that if an activity is done out of Singapore, it will comply with that standard.”

For all our coverage of the Singapore FinTech Festival 2021, go to bt.sg/sff2021.