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Singapore Central Bank Becomes Latest Central Institution to Trial Blockchain

Singapore’s central bank has announced it is to begin trials into blockchain, as a precursor to issuing digital currency through interbank payments.

The Monetary Authority of Singapore indicated it was developing a proof of concept model for utilizing blockchain in settlements between banks, with a view to developing a secure, decentralized alternative to working with traditional currency.

The move comes just 24 hours after the Swedish central bank indicated similar leaning, joining a number of organizations across private, public and third sectors exploring blockchain technology and the potential for applications in banking and other industries.

The bank’s managing director, Ravi Menon, said the impetus for the move was driven by a will to reduce the costs of transactions, as well as other friction points in interbank transfers.

"Today, banks have to go through correspondent banks to intermediate these payments. It takes time and adds to cost. This project marks the first step in MAS's exploration of ways to harness the potential of central bank-issued digital currency."

The program is being launched in conjunction with a consortium of eight banks, a stock exchange and a group of blockchain technology companies, with potentially significant implications for the way banks do business in Singapore.

The Monetary Authority of Singapore move is thought to have implications for banking more globally, and other central banks worldwide will no doubt be looking to the pilots in Singapore and Sweden to identify opportunities for implementation within their own payments ecosystem.

Through using blockchain and decentralized ledger technology, it is hoped that the bank will eliminate much of the cost and time-consuming elements of settlements between financial institutions. It comes at a time when major organizations worldwide are turning their focus to developing blockchain technology, and identifying new, secure applications for commercial use.

The pilot will see the banks involved ringfencing funds, to be converted into digital currency for issue between them, with digital currency fully redeemable for cash from the central bank.

Analysts have suggested the move could be an introductory step, ahead of a long-term plan to fully digitize currency in Singapore’s banking system.