What is the Purpose-Bound Money Concept Proposed by Singapore?
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What is the Purpose-Bound Money Concept Proposed by Singapore?

The PBM protocol would allow senders to set conditions including how long the money is valid and on which platforms it can be used.
Neither the author, Ruholamin Haqshanas, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The Monetary Authority of Singapore (MAS) has released a whitepaper on purpose-bound money (PBM), a protocol to determine digital money’s conditions. The PBM would allow senders to set transfer conditions, including how long the money is valid and on which platforms it can be used. 

What is PBM? And How Would it Work?

Purpose-bound money (PBM) is a new protocol designed to work with different ledger technologies and forms of money to program digital money. It is expected to enhance the efficiency of settlements, user experience, and merchant onboarding and work with various ledger technologies across different use cases. 

The PBM protocol uses a four-layered model describing the network’s technology. These layers are the access layer, service layer, asset layer, and platform layer. 

At the heart of the PBM protocol is the programming logic that allows digital money to be programmed. This creates a unique wrapper that defines the intended use of digital money and an underlying collateral that serves as a store of value.

“The PBM design is technology neutral and aims to work across different types of ledgers and assets,” the MAS said in its technical whitepaper. “It is envisioned that PBM could be implemented on both distributed and non-distributed ledgers.”

The paper further detailed that the PBM protocol consists of two main components: the wrapper and the underlying store of value. The wrapper is implemented as a smart contract code, specifying the conditions under which the digital money can be used.

For example, the PBM wrapper could be programmed only to allow digital money to be used at specific retailers, in predetermined denominations, or within a certain period. Once the conditions specified in the PBM Wrapper are met, the digital money is released and transferred to the recipient.

A PBM binds the underlying digital money and serves as collateral for the PBM. When the conditions of a PBM are fulfilled, the underlying digital money is released, and ownership is transferred to the target recipient. 

Digital money must meet the functions of money, including being a good store of value, a unit of account, and a medium of exchange. The MAS said digital money could come from central bank digital currencies (CBDCs), tokenized bank liabilities, or well-regulated stablecoins. 

“As an example, digital money could be implemented in the form of an ERC-20 compatible fungible token smart contract,” the MAS said, referring to the popular standard used for smart contracts on the Ethereum Blockchain.

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What Are Some Potential Applications of PBM?

One potential application of PBM is in scenarios where corporations require fees to be collected upfront as assurance before manufacturing a good or providing a service. The MAS said that PBM might solve the risk of non-delivery by including conditions for payment to ensure that corporations fulfill their obligations before they “drawdown” on the amount pre-committed by the consumer.

Likewise, when shopping online, consumers must typically pay in advance for the product they wish to purchase. PBM offers an alternative solution and assures merchants and consumers that funds will be transferred when service obligations are met. 

PBM could also be used in contractual agreements, such as when a homebuyer initiates an application to buy a property. A PBM could be created based on terms defined with the sale of the property. 

In leasing a property, landlords may require tenants to provide a security deposit to protect against any damages or unpaid rent. PBM could address this issue by fulfilling “the role of security deposits where parties to the lease agreements are guaranteed the possibility of recovering security deposits in full,” Singapore’s central bank wrote. 

Moreover, PBM could facilitate trade involving multiple parties across different borders and currencies. Trade finance instruments could be modeled as PBMs, whereby payment is automatically made upon fulfillment of service obligations.

Another potential use case of the PBM protocol is in cross-border payments, subject to policy and regulatory requirements. By embedding existing policy requirements as conditions into PBMs, compliance checks can be automated, thus reducing costs and increasing efficiency in cross-border payments. 

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Singapore Attracts Crypto Firms Amid Regulatory Uncertainty in the West

Singapore is considered one of the most crypto-friendly jurisdictions in the world. However, the Southeast Asian hub has adopted a more cautious approach to regulating the crypto industry following a series of high-profile collapses in 2022. For instance, in April, the MAS hinted at tightening stablecoin regulations after TerraUST’s implosion more than a year ago.

Last month, the MAS also published a notice asking companies offering crypto-related services to conduct more rigorous customer due diligence. The financial watchdog requires more detailed information on accounts and transactions, e-money transfers, and high-risk customers.

Still, Singapore is becoming a popular destination for crypto firms seeking to expand their operations in Asia. Earlier this week, US-based crypto exchange Gemini said it plans to bring in more than 100 new employees to expand its current team in Singapore. Moreover, Ripple has secured an in-principle approval to offer services in the country.

Do you think the PBM could help boost the adoption of CBDCs and stablecoins? Let us know in the comments below.