Today, the Monetary Authority of Singapore (MAS) issued a white paper on purpose-pegged money, a form of tokenized digital currency that restricts how money can be used. It is part of Project Orchid’s Central Retail Bank Digital Currency (CBDC) research initiative. Four pilot projects are underway, three of which involve Singapore’s largest banks, DBS, OCBC and UOB.

The central bank distinguishes between programmable payments: conventional payments with rules, programmable money, in which the rules and the payment instrument are combined into a blockchain-based token, and purpose-bound money (PBM), which considers a third model based on programmable payments. money. The money involved can be central bank digital currency, tokenized bank deposits, or stablecoins, collectively referred to as Digital Singapore Dollars (DSGD). In the DBS pilot, it is tokenized bank money.

On a practical level, PBM is a type of bonus. It can be a government bond, where the money is earmarked for a specific use, or a private bond, even a gift voucher. The challenge for merchants is that they must handle all the administration involved in accepting different types of coupons. That includes signing contracts and also processing vouchers, which invariably results in a small delay of a day or two before

the seller receives a cash payment.

MAS wants to create a standard for this process, making different types of vouchers interoperable. That would make it much easier for merchants to accept multiple coupons, and they could also receive instant payments instead of having to wait.

In order for a government or private issuer to distribute a PBM coupon, they must hold cash to back the coupon, whether it be a CBDC, tokenized bank money, or a digital currency.

A series of money pilots tied to a purpose

In the case of DBS Bank, for the pilot, they partnered with Open Government Products (OGP) to help them issue Community Development Council vouchers that are used to help people cope with the rising cost of living. The trial will involve 1,000 consumers and six food and beverage outlets over four weeks beginning October 27.

“We want to test how we can make settlement faster and less expensive, and reduce the reconciliation effort of banks, coupon issuers and merchants,” said Li Hongyi, Director of Open Government Products. “If it proves to be useful, perhaps such a model, where merchants receive DSGD immediately with each coupon redemption instead of a coupon (and which has to be redeemed separately), could be a model that can be extended to other future government programs.

The other big banks in Singapore are also involved in pilot projects. OCBC and the Central Provident Fund Board will test government payments where beneficiaries do not need to have a bank account. And UOB and SkillsFuture Singapore (SSG) will test the disbursement of SSG credits.

Later this week, during Singapore Fintech Week, there will be a commercial voucher pilot in partnership with Temasek, Fazz Financial and Grab, Singapore’s version of Uber.

At this stage, MAS does not see the need to move forward with a retail CBDC, but wants to be ready if the need arises. He is also conducting cross-border multi-CBDC experiments as part of Project Dunbar, DeFi experiments with Project Guardian, and his white paper suggests “further cross-border digital currency connectivity initiatives” in 2023.