The Monetary Authority of Singapore (MAS) plans to conduct trials for the issuance and use of wholesale central bank digital currency (CBDC) in 2024.

"We will take our experiments a step further next year," said MAS Chief Executive Ravi Menon, as reported by CNBC on Friday (17/11/2023).

"I am pleased to announce that MAS will trial the direct issuance of wholesale Central Bank Digital Currency to instantly support payments among commercial banks here," he added.

Wholesale CBDC is a digital currency issued by the central bank exclusively for use by central banks, commercial banks, or other financial institutions to settle large-value interbank transactions. This is distinct from retail CBDC, which serves individuals and businesses or facilitates everyday transactions.

Ravi revealed that since 2016, MAS has conducted numerous experiments with other central banks and the financial industry to explore the use of wholesale CBDC on the ledger.

One such pilot project was Project Ubin, initiated in 2016 to explore the use of blockchain and digital ledger technology for clearing, payment settlement, and securities.

Project Ubin was completed in 2021 after five experimental phases, involving partners such as Singapore's largest bank, DBS, and the national wealth fund Temasek.

Last November, MAS announced Ubin+ to advance cross-border connectivity with wholesale CBDC through collaboration with international partners.

During these trials, the Singapore central bank will partner with local banks to test the use of wholesale CBDC to facilitate domestic payments.

Banks will issue tokenized bank liabilities in the form of claims on the balance sheet.

Retail customers can then use these tokenized bank liabilities in transactions with merchants, who will subsequently credit these liabilities to their respective banks.

Tokenization refers to the process of digitally issuing an asset on a blockchain.

The CBDC will then be automatically transferred to the merchant as a form of payment during the transaction.

"So, the opening and settlement occur in one step on the same infrastructure, unlike the current system where opening and settlement are done on different systems, and settlement occurs with a delay," he explained.

According to the Ministry of Finance of the Republic of Indonesia, Central Bank Digital Currency (CBDC) is a digital currency issued and controlled by the central bank, used as a legal means of payment to replace physical currency.

CBDC will act as a digital representation of a country's currency.

CBDC already fulfills the three basic functions of money: a store of value, a medium of exchange, and a unit of account.