In a paper detailing the economic case for a central bank digital currency, the monetary authority concludes that “there is no pressing need for a retail CBDC in Singapore at this point in time.” However, it will keep adding to its capability to issue one, just in case the private sector in the future hooks consumers to a particular payment mode only to shortchange them by abusing its monopoly power.
This is a pragmatic approach. Startups might welcome an online medium of exchange that’s widely available to the public, and not tied to a large competitor. Then they won’t need to invest in proprietary e-money systems to compete. The problem is that Singapore’s triple-A-rated sovereign has historically accumulated fiscal surpluses and is not known to cheapen its exchange rate to gain an export advantage. That makes its currency an attractive store of wealth. In fact, a digital version may be perceived as superior since paper cash is costly to store.
In a low-interest-rate environment, a Singapore digital dollar could thus walk away with all-important bank deposits, which account for 92% of money supply and all of the online payments by households and firms. It would be a direct liability of the monetary authority and hence devoid of credit risk. The central bank could, however, tamp demand for its CBDC by putting limits on how much can be stored in a wallet. It could also restrict use only to residents and tourists, keeping it out of reach of global investors.
These checks may be crucial. The small, open Asian economy doesn’t set local interest rates. It guides financial conditions by tweaking the exchange rate of the Singapore dollar against a basket of trading partners’ currencies. Sacrificing monetary control to fit in with the zeitgeist of giving 5.5 million people a brand-new payment instrument is not a great tradeoff. A digital Singapore dollar can wait.