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A digital Singapore dollar may be too much of a good thing

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The world may be going crazy over digital currencies, but tiny Singapore is swimming against the tide.

The central bank has decided against offering a paperless version of the city-state’s legal tender — at least for now. Not because an electronic version of cash may flop, but because it’ll most likely be a hit. That could have consequences for the island’s financial stability and conduct of monetary policy. Even if those risks are manageable with in-built safeguards, why rock the boat?

In a paper detailing the economic case for a central bank digital currency, the monetary authority concludes that “there is no pressing need for a retail CBDC in Singapore at this point in time.” However, it will keep adding to its capability to issue one, just in case the private sector in the future hooks consumers to a particular payment mode only to shortchange them by abusing its monopoly power.

This is a pragmatic approach. Startups might welcome an online medium of exchange that’s widely available to the public, and not tied to a large competitor. Then they won’t need to invest in proprietary e-money systems to compete. The problem is that Singapore’s triple-A-rated sovereign has historically accumulated fiscal surpluses and is not known to cheapen its exchange rate to gain an export advantage. That makes its currency an attractive store of wealth. In fact, a........

© The Japan Times

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