Purpose-bound money, still searching for its purpose

AT the recent Singapore Fintech Festival (SFF), I bought lunch for myself using some digital Singapore dollars. The experience was rather underwhelming – it reminded me of the process of using the digital Community Development Council (CDC) vouchers, except it was more unwieldy.

My tokens were loaded on to a unique wallet that I knew how to access only via a weblink. I had emailed this link to myself a week before, so I spent some time fishing for the link when I wanted to use the vouchers. I should have bookmarked the link, but the user experience could have been more intuitive.

The Monetary Authority of Singapore (MAS), organiser of SFF, had used the event to test two types of so-called “purpose-bound digital Singapore dollars”. One was disbursed by the government and issued by DBS in the form of tokenised deposits. This was the one I managed to use for my lunch.

The second was issued as commercial vouchers by stablecoin issuer Fazz (formerly Xfers). I never used these because it was not obvious, amid the crowded conference grounds, which merchants would accept them. I wish there had been a list or map of these merchants.

If either of these two tokens are eventually issued on a wider scale, extra care must be taken to avoid disenfranchising the elderly and those less digitally literate.

These tokens should be easily accessed and retrieved, ideally from one wallet, and made interoperable across different platforms. Otherwise, we run the risk of another Singapore ReDiscovers debacle: Those vouchers, meant to stimulate domestic tourism, suffered a low redemption rate as many were turned off by the tedious and tenuous redemption process.

MAS is probably well aware of the limitations of its experiment with digital currency.

The central bank has said it does not see a compelling use case for retail central bank digital currencies (CBDCs), as electronic payments in Singapore are already pervasive. Its experiments at SFF are meant to explore potential uses for digital currencies, and to build technical capabilities should the need to issue a retail CBDC arise.

It is testing “purpose-bound money” because such digital currencies would allow the issuer to specify a “purpose”, or conditions, for their use. Examples of conditions include expiry dates, specific merchants and product classes, or predetermined denominations.

Yet, such conditions can be programmed even without a blockchain – as is the case with CDC vouchers. MAS had in a report said that programmability, while a key enabler of some of the commonly cited use cases for a retail CBDC, is “neither an inherent nor unique feature” of a retail CBDC.

Where the blockchain could make a difference in purpose-bound money is with businesses, particularly smaller ones, as they could save on time, costs and manpower previously devoted to end-of-day reconciliation.

The use of a common ledger that is immutable, time-stamped and transparent to all parties involved should reduce reconciliation efforts. Merchants who are paid in purpose-bound money would directly receive their underlying digital Singapore dollars, which could be used immediately or converted to deposits in the merchants’ bank accounts at the end of the day.

In contrast, vouchers currently take one to two days to be processed before the money is credited into merchants’ bank accounts. The process involves the campaign organiser, the merchants, the voucher issuer and the banks verifying that cashflow from one party to the other is accurate. A reconciliation mismatch at any point would mean even more time and money needed to resolve the dispute.

For now, at least, transacting on the blockchain has the potential to make life easier for merchants. For consumers, the user experience will depend a lot on better design. But for me, the process was more complex than I would have liked.