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Economy

Singapore dangles fintech prize for digital currency ideas

Central bank aims to iron out issues with fiat e-money as interest grows

The Monetary Authority of Singapore has not said whether it will launch a retail digital currency, but it has been exploring the concept.   © Reuters

SINGAPORE -- Singapore is challenging fintech companies to pitch ideas to maximize the potential of central bank digital currencies, as countries increasingly look to create next-generation fiat money.

The Monetary Authority of Singapore, the central bank, on Monday said it wants financial technology businesses, financial institutions and other global players to submit suggestions on how to address problems around instruments, distribution and infrastructure for retail CBDCs. They stand to win some cash -- and publicity -- for doing so.

Singapore, one of Asia's key financial hubs, has been studying the CBDC concept and has already experimented with it for wholesale use. The central bank has yet to announce whether it will officially launch its own digital currency, but the pitches could help it further explore the possibility.

A retail CBDC refers to a digital form of fiat currency that can be used for shopping and other daily payments, just like traditional money but through personal devices like smartphones. Although there are plenty of digital payment methods around, central banks see establishing their own as a way to potentially expand financial inclusion, increase payment efficiency and enhance monetary policy.

China is eagerly experimenting with a "digital yuan" by distributing the currency to residents in selected cities. Cambodia last year became the first country in the region to launch its own retail CBDC, called Bakong, which was developed with Japanese blockchain technology company Soramitsu.

A survey by the Bank for International Settlements, released in January, found 86% of 65 central banks were actively engaged in some form of CBDC work. Nearly 60% said it was either "likely" or "possible" that they would issue a CBDC for retail use in the next six years.

Unlike existing e-money and cryptocurrencies, a CBDC represents a direct claim on a central bank rather than a liability on a private financial institution, the BIS explains.

"Central banks worldwide are actively exploring issuance of digital currencies, and are confronted with a wide range of policy and technology challenges," Sopnendu Mohanty, the Singaporean central bank's chief fintech officer, said in a statement.

The problems the MAS is looking to resolve include whether offline transactions can be enabled in areas with no internet connectivity, as well as how to protect personal data while allowing illicit activity to be monitored.

Dubbed the Global CBDC Challenge and launched in partnership with the International Monetary Fund, the World Bank and other institutions, applications close on July 23. Shortlisted candidates will be able to pitch their ideas at the year-end Singapore Fintech Festival, one of the world's biggest fintech events.

Up to three winners will receive cash prizes of 50,000 Singapore dollars ($37,000), while getting the chance to promote their technologies to the world.

Mohanty said, "MAS hopes to encourage innovator communities worldwide to develop and showcase solutions that can maximize the potential of CBDC to deliver efficiencies to payment services [and] improve financial inclusion, consistent with central banks' core mandate of monetary stability."

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