Singapore’s Central Bank to Promote a Digital Asset Ecosystem

The Monetary Authority of Singapore, or MAS, recently announced that its trajectory is to become a global digital hub, which means it may start processing digital assets like a cryptocurrency that has already been commonly used in casino online and betting industries. 

The country’s central bank aims to promote the digital asset industry or ecosystem, but then it also wants to reduce the risk to the users and consumers. As it stands right now, cryptocurrency assets are highly speculative.

The MAS wants to enforce stronger measures that will protect retail investors in the cryptocurrency industry. The goal is to remove the prevailing notion that cryptocurrencies are heavily speculative and are not reliable investments. 

Many people believe that cryptocurrencies have no real underlying value — they are not like stocks whose prices have something to do not just with speculations but with the actual earnings of the company.

To do this, the central bank wants to focus its attention and effort on the promotion of a digital asset ecosystem that is safe. In addition, they want this ecosystem to drive other traditional assets like cash and bonds. On top of that, they will add other digital assets such as non-fungible tokens, or NFTs, real assets and intangible assets like carbon credits and computing resources.

Why Cryptocurrency Is Not Safe

Cryptocurrencies have taken a life of their own, says the MAS Managing Director, Ravi Menon. According to him, it is the reason why the digital asset industry is reeking with fear and problems. In Singapore, regulators are cracking down on the regulation laws that will prevent a market downturn in the future.  

The eventual goal is to make digital assets more non-speculative and prevent the downfall of cryptocurrency firms like Three Arrows Capital and Vauld. Ravi also said that the approach they wanted to take was synergistic, meaning that it would work with crypto-asset firms to strengthen the ecosystem, making it safer for investors. 

Ravi added that this approach or stance on the issue was not a contradiction to what he said at a Green Shoots seminar a few days ago. These seminars are about introducing new products and policies in the financial services industry. 

What MAS wants is to strengthen the protection layers of retail crypto investors, which Ravi mentioned in his speech last Monday. 

The problem, according to Ravi, is that the digital asset ecosystem allows anything to be of value even if there is none. It is because these assets run on blockchain technology, which is a distributed ledger.

The underlying issue with speculation is that these cryptocurrencies have no real value because the blockchain is nothing more than a ledge of transactions.

Addressing the Digital Asset Security Issue

To address this, the proposal is not to use the typical blockchain technology now but to promote digital assets for things that have real value, like financial assets, cash, and bonds. Artwork and physical properties can also be digitized.

These assets, when digitized, have real value, and their value lies in the actual cost of the artwork or tangible asset. For example, people can sell bonds in digital form, which have real value because bonds are government IOUs with interest.

In essence, the approach here is a double-edged sword. The first is that the central bank must strengthen its policies and laws against speculative investments like NFTs and cryptocurrencies with no underlying value. 

The second is to create an ecosystem where traditional physical properties are converted into digital assets. Then, these digital assets will be traded like cryptocurrencies. 

Although cryptocurrencies are highly speculative, it has already seeped through the minds of many people. Today, people want to get a slice of it because it does go up in value faster than any controlled investments. 

Yes, cryptocurrency is a bubble, and yet there are cryptocurrencies that have a finite number. For example, there can be no more than 21 million bitcoins in circulation. 

As bitcoin miners reach this number, there will be less bitcoin for people to own. Since there will be no new bitcoin to be minted, this asset is already scarce, and it drives the demand up.

Other countries, like China, are taking on a new approach. What it did was turn its fiat money into something digital. The country converted its renminbi into a digital currency. What it means is that it no longer has to print paper money or coins as it used to. 

China did not create a new currency but only converted its fiat into a digital version. It is a state-sponsored currency called e-CNY. 

The project got its pilot release in April 2020. The Chinese Yuan or CNY was launched in four cities as a digital currency. The entire plan took six years to develop, and it was a success. Today, the e-CNY is rapidly growing, and the Chinese government is expecting that it can fight the dollar.  

What makes this a good move is that people can use the e-CNY to navigate through international transactions. It can serve as a workaround for people who want to use the Chinese Yuan in countries where transactions with China are banned or sanctioned.