Singapore's a small red dot, but a global node

IN JULY 2020, the Monetary Authority of Singapore (MAS) issued a consultation paper, "The New Omnibus Act for the Financial Sector". Among the regulatory power it seeks to expand, of great significance is the regulation of Virtual Asset (or digital token) Service Providers (VASP) created in Singapore for anti-money laundering and countering of financing of terrorism purposes, regardless of where a VASP conducts its businesses or where its customers are located.

With this proposed new Act, together with the Payment Services Act 2019 and the existing Securities and Futures Act, the regulatory framework for digital tokens and the activities around them have largely been completed. Singapore will become one of the first few countries in the world with clear rules on digital tokens. The legal clarity these Acts provide will put the city state in a good position in promoting inclusive digital finance that is closely associated with the digital tokens.

We believe these Acts can contribute significantly to Singapore's aspiration to be the Global-Asia Node of Technology, Innovation and Enterprise.

Building inclusive digital finance

As a small country, Singapore does not pose a threat to the big countries. It can play to its advantage by promoting neutrality and proposing valuable propositions to attract capital, cutting-edge technologies and talent from countries around the world, including the major powers like China and United States, to Singapore, which can then lead and coordinate the development of inclusive digital finance in Asia and even the world.

A good example is SmartMesh. Henry Wang, its founder and chief executive, came to Singapore from China in 2017 and has been actively promoting blockchain-based mesh networking, which can be used in Space-Ground Integrated Networks.

These networks comprise low-orbit satellite Internet and grounded MeshBox (a smart hardware used to provide large-scale wireless broadband mesh networks and Internet of Things or IoT coverage). The idea is to bring safer, cheaper, faster and more inclusive communication and IoT to 56 per cent of the world's population without standard Internet connection, such as those powered by 4G or 5G networks. SmartMesh plans to help the Asian Development Bank (ADB) to promote Space-Ground Integrated Networks, using satellite networks to connect remote areas and islands, starting in South-east Asia and ultimately linking all of Asia.

For a global connection, Singapore can play an important role. It is now difficult for Starlink, a satellite Internet constellation being constructed by a US private aerospace company SpaceX providing satellite Internet access, to land in China. On the other hand, China's low-orbit satellite constellation cannot land in the United States.

With its neutrality, Singapore can launch a low-orbit satellite constellation and land in the US, China and other partner countries to serve as the global Space-Ground Integrated Network, and provide a global Internet of value and an important digital infrastructure for inclusive finance to reach the un-banked and under-banked populations of the world.

With its sound digital infrastructure, clear regulatory framework for digital tokens, and impending digital-banking licences, Singapore will be in a good position to nurture and build the social good of digital finance for the region, such as in the area of decentralised finance (DeFi).

DeFi is a series of financial applications, also known as Dapps, developed based on an open decentralised platform such as Ethereum blockchain network. The financial transactions are done via crypto currency or digital tokens and the entire process is conducted on the blockchain. DeFi can promote financial inclusion because DeFi transactions are typically open source, fully transparent, permission-less (that is, anyone with an Internet connection can access it), and do not need to rely on a centralised entity to provide credit intermediaries or endorsements. So, DeFi helps democratise finance and promote inclusive finance.

Building international digital trade

With the ongoing Sino-US trade war and other geopolitical conflicts, protectionism is on the rise, and globalisation is being weakened. Singapore, however, is committed to defending the global rules-based trading system and contributing to free and fair international trade.

It has been a strong proponent of Digital Economy Partnership Agreements (DEPAs), which establish new international rules and frameworks to support businesses engaging in digital trade and e-commerce. To date, Singapore has signed DEPAs with Chile, New Zealand and Australia. Such agreements aim to promote digital connectivity, including electronic trade, interoperability of cross-border digital systems, free flow of data across borders, data innovation, and financial-technology cooperation.

Another major plan worthy of attention is the recent cooperation between the Infocomm Media Development Authority (IMDA) of Singapore and the Society for Worldwide Interbank Financial Telecommunication (Swift) to use blockchain technology to create trusted interoperability and exchanges of electronic trade documents across digital trade platforms from different countries, called TradeTrust.

This plan is expected to provide more convenient and cost-effective cross-border digital trade for 11,000 Swift information technology users in more than 200 countries and regions around the world.

As Singapore's Deputy Prime Minister Heng Swee Keat aptly said: "As the world builds walls, Singapore must build bridges."

Three digital value propositions

In short, despite being a small country in the physical world, Singapore can make positive and exemplary contributions to the region and beyond in the new digital world. It may not have the market power, capital, technologies or talent needed to change or improve the world's finance and trade, but its strengths lie in its abilities to connect the digital world, provide the digital elements, and set digital standards:

These include curating supportive policies and regulatory frameworks such as the innovative "regulatory sandbox" for fintech, providing cutting-edge and open digital infrastructure and utilities such as TradeTrust and Business sans Borders (BSB, a cross-border global digital trade platform for SMEs), designing incentives and providing business efficiency to attract capital, and establishing data protection and intellectual property rights laws to draw world-class brain power, talent and R&D capability;

Just recently, Singapore became one of the first few countries in the world to launch a publication on "AI Ethics and Governance Body of Knowledge". Developed by Singapore Computer Society and supported by IMDA, the guide sets benchmarks for the responsible use of AI, and creating trust in its use.

Singapore could leverage its digital strengths and work with international organisations such as the International Monetary Fund (IMF), International Finance Corporation (IFC) or ADB to launch initiatives here to champion the cause of digital finance and digital trade in the region.

Through partnership with promising tech startups or tech companies in the private sector in such initiatives, Singapore unicorns can be groomed; in the process, Singapore can be established as an important Global-Asia node for technology, innovation and enterprise.

In fact, we have seen such examples. Apart from SmartMesh working with ADB, InforCorp, with support from United Nations' FinTech Innovation Fund, is developing a digital platform to link unbanked women cattle farmers with investors, using livestock as collateral for loans through a blockchain solution. And RootAnt, working with IFC, is developing a digital platform to provide multi-tier trade financing solutions to the SME suppliers in Vietnam.

In this extraordinary time, Singapore is doing what it can to promote collaboration of technologies to resist the divisive trend of polarisation of technologies, to champion new digital trade to combat the de-globalisation of traditional trade, and to promote financial democracy and inclusiveness to correct the ill effects of traditional "capitalist" finance.