CBDCs can help improve cross-border payments for businesses, says MAS chief

SINGAPORE — Central banks need to consider how they can securely use central bank digital currencies (CBDCs) for businesses to send money to each other in cross-border payments, the Authority’s chief executive has said. Singapore Monetary Fund (MAS), Ravi Menon, at a conference of the International Monetary Fund and Swiss National Bank in Zurich, Tuesday, May 10.

A CBDC is the digital form of a country’s fiat currency. The MAS divides CBDCs into retail and wholesale CBDCs. A retail CBDC is issued by the central bank directly to the public, while a wholesale CBDC does not enter the public realm and circulates within the interbank system.

Mr Menon said wholesale CBDCs help solve a “bigger problem” than retail CBDCs.

He argued that wholesale CBDCs enable atomic settlements, or the instantaneous and direct exchange of assets. This exchange is made possible by blockchain technology, which allows a crypto or digital asset to exist.

If the atomic settlement can be achieved, then cross-border payments can be made “at theoretically close to zero cost”, he said.

It also mitigates counterparty default risk and saves money on collateral and pre-funding accounts and reconciliation that banks spend a lot of time on today, Menon said.

Regarding the amount of retail CBDCs that central banks should issue, the MAS chief is of the view that they should be capped at levels linked to the monetary base so as not to disrupt the roles of financial intermediaries such as banks and payment providers while meeting the specific needs of segments of society.

Mr. Menon said a unique advantage of the crypto ecosystem is that it allows high-value assets to be split up and made more accessible to a wider range of investors, as well as the monetization of illiquid assets.

This unlocks economic value, improves financial inclusion and enables more transparent and efficient financial services, Menon said during a panel discussion on the policy challenges posed by the rise of digital currency and assets. cryptographic.

The discussion comes as central bank chiefs around the world try to figure out how to regulate and move forward with crypto assets, given the high risks and volatility.

It also comes amid a sell-off in the cryptocurrency market. Bitcoin, the world’s largest cryptocurrency, fell below $30,000 on Tuesday, more than half of its all-time high of $65,000 in November 2021 and its lowest price of the year.

In light of tighter monetary policy, recession fears and dwindling liquidity, investors are turning away from speculative assets in a global sell-off.

The Federal Reserve last week authorized a half-percentage-point hike in its benchmark interest rate, making it the biggest hike since 2000.

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