MAS’s DLT project posts successful results

The Monetary Authority of Singapore (MAS) has published the details of its secretive distributed ledger initiative, Project Ubin, citing largely positive results. Credit and liquidity risks, alongside legal oversight, remain a concern, however.

The project, announced in November 2016, uses distributed ledger technology (DLT) to place “a tokenised form of the Singapore dollar” on a ledger integrated into the nation’s real-time gross settlement (RTGS) platform. 

“SGD-on-ledger is a specific-use coupon that is issued on a one-to-one basis in exchange for money,” the report explains. The coupons, in this experiment, have a specific-usage domain – in MAS’s case for the settlement of interbank debts – but no value outside of this.

MAS’s report, published May 31, analyses the monetary policy and legal ramifications of introducing digital dollars into the current payment infrastructure.

In partnership with Deloitte and DLT consortium R3, Singapore’s central bank launched the first phase of the project between mid-November and December. During this stage, the central bank drew on elements of the Bank of Canada’s DLT initiative, Project Jasper.

The Project Ubin initiative itself relies on a private ethereum network, a rival form of blockchain to bitcoin, that was created for the test but built on pre-existing source code from the Canadian project.

The overall outcome of the trial, according to the central bank, was positive. Project Ubin’s first phase “was successful as it has brought together a wide range of parties”, the report said. It managed to build a “working interbank transfer prototype on a private ethereum network”.

Technical difficulties

However, technical issues surrounding credit and liquidity risks also remained. “An appropriate legal structure is required to ensure that the transfer of Digital SGD is equivalent to a full and irreversible transfer of the underlying claim on the central bank’s currency,” the report said.

Such a framework would ensure there is no credit risk associated with the creation, distribution, use or redemption of the digital currency.

Looking ahead, the central bank plans to alter the framework slightly in order to mitigate credit risk. MAS suggests including the creation of a “money market” for the digital currency where banks can borrow from one another without posting cash to the central bank.

There were also concerns about liquidity, centring on how banks would decide when to allocate their funds to one system or the other. “This introduces the risk that one facility or the other will not be adequately funded,” the MAS report said.

In future stages of the project, Singapore’s central bank intends to expand on the initial concept and build further capabilities into the platform.

“Future phases would focus on the future operating model of Project Ubin, further technical analysis, focus on securities settlement by developing delivery-vs-payment and cross-border payments,” MAS said.