Singapore is set to pioneer the use of wholesale Central Bank Digital Currencies (CBDCs) in a live setting with local banks, with the pilot slated for 2024. Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), made the announcement at the Singapore FinTech Festival 2023, revealing plans to take CBDC experiments to the next level.

The “live” issuance of wholesale CBDCs is designed to facilitate instantaneous payments across commercial banks. Wholesale CBDCs are digital currencies issued by a central bank specifically for the settlement of interbank transactions. MAS has been actively exploring the use of wholesale CBDCs on distributed ledgers since 2016, conducting various experiments with central banks and the financial industry to enhance real-time cross-border payments and settlements.

Up until now, these experiments have been confined to simulated environments. However, the upcoming pilot will mark a significant leap as it involves the “live” use of wholesale CBDCs to settle retail payments between commercial banks. Additionally, it will pave the way for the settlement of cross-border securities trade in the future.

In this innovative system, banks will issue tokenized bank liabilities, representing claims in balance sheets. Retail customers can then utilize these tokenized bank liabilities in transactions with merchants. The outstanding interbank obligations resulting from these transactions will be settled through an automatic transfer of wholesale CBDCs.

Ravi Menon emphasized that this approach streamlines the clearing and settlement process. Unlike the current system where clearing and settlement occur on separate systems with a time lag, the use of wholesale CBDCs enables a single-step process on the same infrastructure. This move aligns with Singapore’s commitment to fostering efficient and instantaneous cross-border payments, laying the groundwork for transformative advancements in the financial landscape.