Singapore suggests blockchain to speed cross-border payments
Monetary Authority director calls current system 'not fit for 21st century'
Monetary Authority of Singapore (MAS) managing director Ravi Menon said on Monday the solution to costly, slow and inefficient cross-border payments is the implementation of industry-led blockchain stablecoin transactions and multi-CBDC platforms.
"The current state of cross-border payments is not fit for the 21st century," declared Menon, explaining that the transfer of money across nations currently relies on "an archaic network of corresponding banks" that costs users a global average of 6.4 percent of the total transfer value.
Menon's remarks were made at Sibos 2022 – a financial services conference hosted by Society for Worldwide Interbank Financial Telecommunication (SWIFT). The SWIFT organization facilitates the execution of many international financial transactions, making Menon's comments an awkward thing to say about his host.
Menon didn't just dish out insults. He also offered three recommendations on how to create a more efficient, affordable and inclusive cross-border payment experience: link up faster systems, build a common platform linking multiple central bank digital currencies (CBDCs), and expand private sector blockchain-based payment networks.
Singapore is working to link its current domestic payment system – a scheme that circumvents the sharing of bank details called PayNow – with similar systems in Thailand, Malyasia and India, to make such transactions faster.
But as such efforts to link individual countries for cross-border payments are burdensome, the city-state is also working to develop a central platform for multilateral linkages. Project Nexus is one such effort, promised to clear a transaction in less than a minute on a 24-hour basis for only three percent transfer value fees.
While platforms like Project Nexus are expected to solve some problems, they aren't a panacea. For one, the slow nature of settlement processes must still be addressed. The current settlement process includes sending payments through a series of correspondent banks with varying settlement cycles and can only be done sequentially, often requiring days to complete.
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A solution to this inhibiting feature, said Menon, is a multi-CBDC common platform, as it would provide a distributed ledger to support simultaneous settlement. But CBDCs have their own challenges – such as security, access and regulation – so Menon proposed FinTech-led blockchain as another path forward.
"Securely-backed stablecoins or tokenized bank deposits issued by private sector players can also be used to enable cheaper and faster cross-border payment and settlement," said the director. The MAS exec made it clear he wasn't referring to private cryptocurrency – Singapore officials have spent much time railing against retail crypto especially, and prefer tokenization with the reliability of fiat currencies.
"Securely-backed stablecoins or tokenized bank deposits issued by private sector players can also be used to enable cheaper and faster cross-border payment and settlement," argued the director. He also cited Visa as integrating popular stablecoins into payment services and local joint ventures that use blockchain to reduce payment time to minutes from days.
Stablecoins, however, are far from the finished item as shown by Korean cryptobro Do Kwon overseeing the $40 billion collapse of Terraform Labs' "stablecoin" TerraUSD.
The unfortunate crash of the Kwon empire has not derailed MAS entirely from stablecoins. In August Menon described stablecoins as holding good potential, if "securely backed by high quality reserves and well regulated." ®