The Monetary Authority of Singapore (MAS) has published a whitepaper proposing a common protocol to specify conditions for the use of digital money such as central bank digital currencies (CBDCs), tokenized bank deposits, and stablecoins on a distributed ledger.

Sopnendu Mohanty, Chief FinTech Officer, MAS, said: “This collaboration among industry players and policymakers has helped achieve important advances in settlement efficiency, merchant acquisition, and user experience with the use of digital money. More importantly, it has enhanced the prospects for digital money becoming a key component of the future financial and payments landscape.”

MAS unveils PBM protocol’s source codes and prototypes

MAS stated the whitepaper was supported by the release of software prototypes that demonstrate the concept of Purpose Bound Money (PBM), which enables senders to specify conditions, such as validity period and types of shops when making transfers in digital money across different systems.

The PBM protocol, which is designed to work with different ledger technologies and forms of money, enables users to access digital money using the wallet provider of their choice.

The same infrastructure can be used across multiple use cases and stakeholders using different wallet providers can transfer digital assets to one another without the need for customization.

PBM source codes and software prototypes developed under Project Orchid were released for public access and demonstrate how PBM can be used to embed digital money in escrow arrangements. This serves as a reference model to foster interoperability across different platforms.

Developed in collaboration with the International Monetary Fund, Banca d’Italia, Bank of Korea, financial institutions, and FinTech firms, the whitepaper covers:

• technical specifications that outline the PBM lifecycle from issuance to redemption, and the protocol to interface with digital currencies backing it; and
• business and operating models for how arrangements could be programmed such that money is transferred only upon fulfilment of service obligations or terms of use.

The PBM source codes and prototypes can be tapped by policymakers, businesses, and FIs to facilitate their experiments and research. The Singapore financial watchdog added that financial institutions and FinTech firms are already launching trials to test the usage of PBM under different scenarios:

• Online commerce: Amazon, FAZZ and Grab are collaborating on a pilot use case involving escrow arrangements for online retail payments. This allows payment to be released to the merchant only when the customer receives the items purchased, thus providing greater assurance to both parties.
• Programmable rewards: DBS, Grab, FAZZ, NETS and UOB, will trial the use of PBM based cashback and other incentives to improve consumer experiences while reducing frictions faced by merchants, such as manual reconciliation of sales proceeds and time needed to onboard new sales campaigns.

The whitepaper builds on the Project Orchid by MAS which aims to encourage greater research among central banks, FIs, and FinTechs, to understand the design considerations in the use of digital money.

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