In a keynote address on October 9, 2017, at Global Blockchain Business Conference in Vishakhapatnam (India), Mr. Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS) said that the “killer app” for DLT (Distributed Ledger Technology) is in cross-border transactions.
Mr. Menon said, “When multiple entities across different jurisdictions are involved, there is no natural trusted central party. DLT allows the possibility of various parties working directly with one another to make cross-border transactions cheaper, faster, and safe.”
Using the example of cross-border trade, he mentioned two areas, which Singapore is exploring applications of DLT: trade finance and trade documentation.
In trade finance, DBS Bank and Standard Chartered Bank are exploring the use of DLT to prevent the problem of duplicate invoicing while preserving client confidentiality.
In trade documentation, Singapore is exploring how DLT can be used to link Singapore’s National Trade Platform (NTP) to trade platforms in other countries, such as Hong Kong. The DLT-based platform will allow users to exchange digital trade documents across borders with confidence.
(NTP developed by Singapore Customs in collaboration with the Government Technology Agency of Singapore (GovTech) is designed to be a trade and logistics IT ecosystem connecting businesses, community systems and platforms, and government systems. It is going to be a one-stop trade portal for Business-to-Government (B2G) and Business-to-Business (B2B) services.)
Mr. Menon also talked about Project Ubin, a collaborative effort among MAS, the Singapore Exchange, ten banks, six technology companies, and six academic institutions, which aims to create a more efficient inter-bank payment and settlement system without MAS acting as the trusted party. In a real-time gross settlement (RTGS) payment system, transactions typically go through a single trusted party, often the central bank.
Phase 1 of Project Ubin successfully demonstrated that banks are able to transact with one another on an Ethereum-based prototype without going through the MAS. MAS issued a digital representation of the Singapore Dollar – a central bank digital currency – and placed it on the distributed ledger for domestic inter-bank settlement.
The recently completed Phase 2 of Project Ubin successfully produced three software models that achieved decentralised netting of payments in a manner that preserved transactional privacy. Existing netting programmes used in inter-bank payments rely on a single payment queue visible to the operator to find offsetting payments. However, decentralising the queue potentially exposes payment details to an unauthorised party. The latest models in Project Ubin achieve a superior combination of decentralisation and privacy.
The next step in Project Ubin is to extend the application to cross-border payment and settlement. Cross-border payments today rely on a correspondent banking network, where banks hold balances with one another and settlement occurs through the adjustment of these relative balances. There is counterparty risk, liquidity is split, and reconciliation is a major pain point. In cases, where multiple correspondent banks are involved, transactions may take days and at high cost to customers.
Hence, MAS is exploring how Project Ubin can be linked up with other central bank DLT projects to facilitate cross-border payments. If successful, it could bring about significant improvements in efficiency, cost, speed, and risk management.
“The grand vision is a DLT-based settlement system that paves the way for 24/7 operations and allows cross-border transactions to be settled instantly,” Mr. Menon said.
Last week, OCBC Bank, HSBC and the Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority of Singapore (IMDA), became the first consortium in south-east Asia to successfully complete a proof-of-concept for a Know Your Customer (KYC) blockchain.
FinTech collaboration between Singapore and Andhra Pradesh
The government of Andhra Pradesh set up a FinTech hub in Visakhapatnam or Vizag, called FinTech Valley Vizag, in December 2016, bringing together global financial services companies, investors, startups, government and academia.
The Andhra Pradesh government and MAS signed a FinTech cooperation agreement in October last year. A delegation of more than 10 FinTech startups from Singapore attended the FinTech Valley Vizag Spring Conference in March this year.
Mr. Menon said that with the strong trade flows between Singapore and India, there are good opportunities for FinTechs and financial institutions in Singapore and Andhra Pradesh to collaborate.
“We can explore how our customs and trade platforms can be linked up to facilitate exchange of trade documents and advance the digitalisation of trade. Our banks can work together on new models of cross-border payments to improve settlement time, allow for round the clock operations, and reduce settlement risk,” he added.