Today, the Monetary Authority of Singapore (MAS) opened a consultation on stablecoins, following a previous one in 2019. Responses must be received by December 21. Two of the most thoughtful aspects are how bank-issued stablecoins can co-exist with other stablecoins and how to regulate a stablecoin issued in multiple jurisdictions.

The regulator plans to create a new activity, the Stablecoin Issuance Service, for organizations that issue and redeem stablecoins. Banks can choose to issue stablecoins that are tokenized bank deposits, in which case there are no additional regulatory requirements since they are already regulated.

Alternatively, a bank, like non-bank stablecoin issuers, may choose to set aside limited reserves. This type of stablecoin will be referred to as a regulated or securely backed stablecoin, regardless of the nature of the issuer. And for regulated stablecoins, banks will need to comply with stablecoin rules just like non-banks, in addition to prudential requirements, which are already addressed in the Banking Law.

Regulated stablecoin issuers must invest the supporting assets in cash or short-term (3-month) securities issued by a government agency rated AA- or better and in the same currency as the stablecoin.

Non-bank stablecoin issuers have minimum capital and liquidity requirements to ensure they can cover at least six months of operating costs at all times. They are not allowed to engage in other risky activities such as lending, gambling, or cryptocurrency trading.

MAS wants to ensure that the stablecoins are of a high caliber, so tokens issued in Singapore can only be in Singapore dollars or one of the G10 currencies to ensure sufficient quality of backing assets.

A major challenge for regulators is overseeing stablecoins that are issued in multiple jurisdictions and are technically tradable with each other. MAS is only willing to authorize the issuance of a stablecoin in Singapore if it has any guarantee on the complete issuance.

One approach is to obtain annual independent certification that the stablecoin meets Singapore-like standards with respect to reserves and prudential requirements in other major issuing jurisdictions. The alternative is cooperation with other regulators.

One surprisingly relaxed proposal is that service providers must ensure that any stablecoin transfer is settled within three days. That sounds like a long time, given that most stablecoin transfers are instant or take a matter of minutes.

Today, MAS also opened a consultation on the proposed cryptocurrency rules.

Meanwhile, MAS is running institutional DeFi experiments with JP Morgan, DBS Bank, SBI Digital Assets, and bond issuer Marketnode and is also leading a cross-border CBDC initiative, Project Dunbar.