It’s all about investing in technology
Jamari Mohtar 

While one would expect the custodians of fiat money, that is, banks and central banks in particular, to oppose the existence of crypto currencies – the most famous being bitcoins – the irony is they are actually seeing opportunities in these cryptos, especially in the underlying distributed blockchain ledger technology behind their creation.

The Monetary Authority of Singapore (MAS), the republic’s central bank and financial regulatory authority, is embarking on a project to evaluate the implications of a tokenised Singapore dollar (SGD) on an ethereum-based blockchain distributed ledger with potential benefits to its financial ecosystem.

The objective is to develop a peer-to-peer payment system prototype using distributed ledger technology (DLT) in which bank users can exchange currency with one another without lengthy processing times, expensive processing fees, or intermediaries.

Three innovations that had begun with the creation of bitcoin have paved the way for DLT to emerge:

• Peer-to-peer networks: In this model, every peer in the network is a server and client, both supplying and consuming resources. This may facilitate, for example, the creation of a currency without a privileged trusted third party, among other types of decentralised financial interactions.

• Public key cryptography: This is a method for verifying digital identity with a high degree of confidence, enabled by the use of private and public keys. Cryptography enables the individual identification and exchange of bitcoin among users.

• Consensus algorithms: This ensure agreement between parties on a network can help validate the data’s authenticity as well as transactions and control when it can be written into the system. This prevents double spending by ensuring chronological recording of data.

In June, MAS issued a report, The Future is Here, in which it announced Project Ubin: SGD on Distributed Ledger that was started on Nov 26. Its goal is to
reduce risk and costs for cross-border settlements of payments and securities. Cross-border operations require international cooperation on standards, the ability to identify payers and payees, and systems of adequate scale.

Project Ubin is implemented in phases, starting with a DLT for domestic payments in phase 1. Subsequent phases will explore cross-border payments in a single currency, settling different currencies and culminate with risk-free cross-currency securities settlements.



This concept of an SGD-on-ledger is to distinguish it from existing forms of digital central bank money such as deposits that banks hold at the MAS, which are used to make payments via MEPS+.

MEPS+ or MAS Electronic Payment System is a Real-Time Gross Settlement (RTGS) system that supports large-value local currency interbank fund transfers and settlement of scriptless Singapore Government Securities (SGS) between MEPS+ participants, subject to the availability of funds and securities.

In essence, the SGD-on-a-ledger can be seen as a specific use coupon that is issued on a one-to-one basis in exchange for money. The coupons have a specific usage domain – the settlement of interbank debts – but no value outside of this. One can cash out by exchanging the coupons back into money later.

One may think of these as coupon booklets at fun fairs: visitors can purchase them to be spent on games and food within the fairgrounds only.

SGD-on-ledger has three useful properties:

• Unlike money in bank accounts, there is no interest on the on-ledger holdings because of the speed of the transaction. The absence of interest calculations reduces the complexity of managing the payment system.

• To ensure full-redeem ability of the SGD-on-ledger for money, each token is fully backed by an equivalent amount of SGD held in custody. This means that the overall money supply is unaffected by the issuance of the on-ledger equivalents since there is no net increase in dollar claims on the central bank.

• SGD-on-ledger is limited use instruments and can be designed with additional features to support the use case – such as security features against misuse.

While phase 1, which includes developing proof-of-concept to conduct inter-bank payments through DLT had been completed with flying colour, the other phases are still ongoing.


Moving forward

If completed successfully and later implemented, it will signify the republic would be the first major financial centre in Asia to fully explore the benefits of DLT across a broad set of transformative applications.

So what does all this mean when you see the frenzied transactions in crypto currency trading?

It means you are buying into future technology with varied applications. The ethereum blockchain, somewhat similar to the Bitcoin Protocol is the technology used to create the crypto currency, ether.

And because it has scalability – the speed to process transaction in seconds instead of minutes – the price of ether has risen faster than bitcoin, prompting expert to describe it as the new bitcoin.

But critics of crypto currency, including professors in economics in their rigid thinking, have no other words to describe this rapid increase in price other than painting a doomsday scenario of a bubble in the making, despite the many bubbles that bitcoin has undergone since 2013. They should instead embark on a rethinking of the phenomenon of bubbles in economics, just like the practitioners of economics – the MAS bankers – had exhibited in their rethinking of crypto currencies.

It will do them a lot of good to pay heed to a 2015 report by the UK Government chief scientific adviser on DLT: beyond block chain which asserts that “algorithms that enable the creation of distributed ledgers are powerful, disruptive innovations that could transform the delivery of public and private services and enhance productivity through a wide range of applications … The technology could prove to have the capacity to deliver a new kind of trust to a wide range of services.”

In essence, this would mean doing away with the present arrangement of a trusted third-party intermediary to cut meaningful cost and enhance speed in a trustless peer-to-peer system that can be trusted. If this is confusing, it just means you can have a transaction with anyone in the world, even someone you don’t trust, but you can be assured of the trusted nature of the transaction.

Since Malaysia is setting up a free digital trade zone, a synergy in cooperation and collaboration with Singapore on the creation of a global peer-to-peer payment system that would eliminate a trusted third party would be a novel thing to do.

With a trusted third party gone, you would also eliminate all the past and present scandals and crooks in the financial system masquerading or embedding themselves, as part of the trusted third party!

Jamari Mohtar is a veteran journalist who used to live and work in Singapore. Comments:

This article first appeared in Focus Malaysia Issue 248.