Blockchain technology has often been referred to as a great way of facilitating interbank payments, through private digital currencies. According to recent reports, it seems like the Monetary Authority of Singapore will become the newest central bank to launch its trial, blockchain-based system meant for carrying out interbank payments.
The project reportedly also involves a total of eight banks alongside with the city’s stock exchange, and its main purpose is to simplify the payment process with bitcoin, while also reducing transaction costs. Not only this, but this FinTech concept is likely to also include cross-border transactions, made possible by the participation of another central bank in the foreseeable future. According to the Managing Director of the Monetary Authority of Singapore, Ravi Menon, “Today, banks have to go through correspondent banks to intermediate these payments. It takes time and adds to cost (…) this project marks the first step in MAS’s exploration of ways to harness the potential of central bank-issued digital currency.”
This project represents the latest development of a project that was started more than a year ago, when people first realized blockchain’s huge potential. The MAS plan doesn’t only involve using blockchain to keep track of data, or to record transactions. In fact, the MAS is planning to build its very own digital currency, used for interbank monetary transfers that will be considerably quicker, and also cost less.
With this in mind, the MAS trial will require banks to deposit cash as collateral, in return for digital currency which will then be released by the central bank. Once this is done, member banks can then use the digital currency to send payments to one another. If needed, banks are indeed capable of redeeming the digital currency, and exchanging it for cash, thus making the process quick, easy and efficient.
During the last couple of months, more and more banks throughout the world, but especially in China and the United Kingdom have been studying blockchain uses for banks, and trying to determine whether implementing such a system would be beneficial for the well-being of the financial market.
Recent reports indicate that in Singapore, the MAS will also create a system known as ‘know-your-customer’, which is basically a platform that aims to help banks better avoid redundancy when collecting customer data, while also reducing compliance costs. Lower costs for the bank hopefully mean lower interest fees and other taxes for the bank’s customers.
Based on everything that has been outlined so far, what do you personally think about Singapore’s digital currency bank initiative? Let us know your thoughts in the comment section below.