
At the end of October 2022, the Monetary Authority of Singapore (MAS), the central bank of one of the major currencies used in international transactions made a curious announcement about the successful completion of Phase 1 of Project Orchid. This refers to the successful development of supporting infrastructure for a purpose-bound digital Singapore dollar.
While the news went unnoticed by most, some were quick to dismiss the development as another attempt to create a cryptocurrency. Many pointed to the death of TerraUSD, a stable coin meant to be backed by the US dollar but lost its entire valuation (at least USD 60 billion) in a matter of days in May 2022. The Singapore digital dollar, however, isn’t exactly a cryptocurrency.
What is a Digital Dollar?
A digital Singapore dollar can take different forms—a retail Central Bank Digital Currency (CBDC), which is the digital equivalent of today’s notes and coins issued by MAS; or privately issued money, which could include tokenised bank deposits or securely backed stable coins.
Think of a digital version of cash that is in everyone’s wallet.
Digital dollars or currencies are being explored by many central banks globally. The goal of a digital currency is to future-proof existing currencies and to allow people/companies to make payments without needing to consider space and time. In simpler terms, these are instantaneous, seamless online payments through banks or payment gateways without the transaction costs. People will buy products and services and pay with a digital token.
Using digital currencies is meant to be analogous with using notes and coins to pay for things.
Consumers are already digital
The notion of digitising currencies should not be a foreign concept. In East and Southeast Asia alone, digital wallets such as AliPay, GrabPay, Kakao Pay, and GoPay are commonly used payment modes. There will be an estimated 2.6 billion digital wallet users in East and Southeast Asia by 2025. Swiping one’s credit card has been replaced by scanning QR codes or tapping a payment terminal with a smartphone.
Looking at shopping trends, 44% of Southeast Asian shoppers have turned to online shopping in a year-end Blackbox-ADNA survey in 2022. Online shopping requires shoppers to be comfortable with digital payment modes. In fact, many e-commerce platforms offer a variety of digital payment options beyond the standard fare of credit cards. Using a digital dollar would fit perfectly with online shoppers.

Making the Digital Dollar work
The association between cryptocurrencies and online scams can dampen public’s enthusiasm for digital currencies. This also explains MAS’s stance that consumers are not ready for the digital Singapore dollar and more work needs to be done to prepare a proper ecosystem for digital currencies.
Some aspects to consider when developing digital currencies include interoperability, fungibility of digital currencies across issuers, user protection, and digital readiness of would-be users. When it comes to digital readiness in particular, Singaporeans have shown enthusiasm for newer financial approaches, so it might be simply a matter of creating the right ecosystem to ensure acceptance.

Interoperability refers to the ability of different payment ecosystems to support one another. Right now, a QR code meant for ShopeePay is not compatible with GrabPay. Consumers cannot transfer monies from a Grab Wallet to their WeChat wallets but can transfer to Singtel Dash or TransferWise e-wallets. For a digital dollar to function, different payment platforms need to be compatible with one another, just like how consumers can pay using a UOB credit card for a product sold by a merchant using a DBS commercial account for example.
Fungibility refers to the uniformity of the currency. Notes and coins are issued by a singular central bank or treasury. Whether the US dollar note is physically in the US or Japan, the US dollar retains the same numerical value regardless of location. Potential digital central banks or treasuries need to ensure that any financial institutions that issue digital currency tokens adhere to the uniformity standards that exist for today’s currency issuance rules.
Given the digital nature of digital currencies, user privacy and protection are an immediate consideration. Cryptocurrencies have demonstrated that bad-faith actors can use the complex nature of technical jargon to confuse unwitting users into scams and other pump-and-dump schemes. Both legal and financial protections need to be in place to protect digital dollar users from becoming victims of crime.
This also ties in with the digital readiness of would-be users. As part of Project Orchid, MAS and Singapore’s Ministry of Finance issued digital vouchers in lieu of physical ones as part of its support package to combat inflation. While some were receptive, many, especially but not only, seniors were unhappy with the digital vouchers. They found the concept confusing and difficult to use when making payments. So widespread acceptance certainly requires an inclusive approach.
Digitalisation of financial services and institutions is a permanent feature of the world today. The digital dollar is a natural digital extension of the consumer spending experience. To learn more about how businesses can leverage on the development of the digital dollar and its potential, get in touch with us at connect@blackbox.com.sg.