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AS THE central bank of a leading global financial powerhouse, the Monetary Authority of Singapore’s (MAS) policy decisions can have a wide-ranging impact on the global economy and financial sector.

While Singapore is one of the richest countries in the world on a per capita basis, its economy is highly reliant on international trade. The city-state’s exports and imports of goods and services total more than three times its GDP, according to official data. This leaves it vulnerable to geopolitical tensions and disputes, which have been on the rise in recent years.

The US and the European Union have been building up trade barriers to protect their own industries. Regional conflicts have fuelled investor panic, and the global economy is still reeling from the fallout of the Covid-19 pandemic, with many central banks around the world, including MAS, trying to keep inflation in check.

In October, MAS kept its monetary policy unchanged, making no adjustments to the policy band of the Singapore dollar nominal effective exchange rate (S$NEER) due to the country’s strengthening growth momentum and an anticipated further decline in core inflation. The S$NEER is the trade-weighted value of the Singapore dollar against a basket of currencies, which the central bank allows to fluctuate within a set range. Adjusting its policy band can influence the exchange rate, thereby affecting Singapore’s international trade, capital flows and inflation.

Meanwhile, Singapore has been taking the lead in regulating fintech, aiming to take advantage of new technologies while minimising risks.

MAS managing director Chia Der Jiun. Chia, who has been leading the authority since the beginning of this year, previously spent 18 years at the agency and worked in a range of sectors, including monetary policy implementation, macroeconomic surveillance, and banking supervision and regulation. He holds a bachelor’s degree in politics and economics from Oxford University and an MBA from French business school Insead.

Below is the interview with Chia, who discussed MAS’ stance on subjects including monetary policy, central bank digital currencies (CBDCs), and fintech regulation.

Why did MAS leave its monetary policy unchanged in October? And how does MAS navigate inflationary pressure while supporting economic growth in Singapore?

Chia: MAS’ monetary policy is aimed at ensuring medium-term price stability that is conducive for sustainable growth in the economy. We have remained committed to this objective amid the post-pandemic global price shocks.

Inflation surged worldwide in 2021 and 2022, reflecting an unusual confluence of global demand and supply shocks. Those shocks included a surge in demand for goods and services globally, and at the same time, international supply chain disruptions that caused severe spikes in global energy and food commodity prices. As a small open economy, Singapore strongly felt the impact of the surge in global inflation on its costs and prices.

MAS reacted swiftly and decisively to deal with the inflation surge. We began tightening monetary policy relatively early, in October 2021, and again in an off-cycle move in January 2022. In 2022, MAS tightened monetary policy four times in total, including an unprecedented sequence of three upward re-centrings of the S$NEER policy band. Over the course of MAS’ monetary policy tightening cycle, the S$NEER appreciated by over 10 per cent.

Our proactive and concerted tightening of monetary policy was effective in dampening imported inflation and arresting the momentum of general price increases. MAS kept the S$NEER policy band on an appreciation path throughout 2023 and thus far in 2024 even as global inflationary pressures eased. Domestically, cost pressures were still elevated over this period amid a tight labour market, strong wage growth and the continued pass-through of previously accumulated imported costs. A continuing appreciation of the S$NEER helped to lean against imported inflation, restrain aggregate demand in the Singapore economy and dampen price pressures. The preservation of households’ purchasing power also helped to anchor inflation expectations and forestall a wage price spiral.

Considerable progress has been made in the fight against inflation with core inflation coming down to 2.1 per cent in October. We have assessed that if MAS had not tightened monetary policy, inflation in Singapore would have been higher and more volatile. Core inflation would have reached 7 per cent and headline inflation 8 per cent, rather than their respective peaks of 5.4 per cent and 7.3 per cent, and would have been more persistent.

The prevailing monetary policy setting is assessed to be for now still appropriate to ensure a further easing in inflation to around 2 per cent next year. This is anticipated to take place against a backdrop of a steady global economic expansion and continuing disinflation in Singapore’s major trading partners. Singapore’s GDP growth should continue to be around its potential pace.

Nonetheless, we are vigilant to both global and domestic risks. Domestically, if labour market conditions are stronger than expected, unit labour cost growth and thus services inflation could take longer to normalise. Externally, an intensification of geopolitical tensions could also add to imported costs. In contrast, an unexpected weakening in the global economy would possibly induce an abrupt easing of cost and price pressures and cause domestic inflation to come in materially lower than anticipated.

Singapore has announced its plan to issue a digital Singapore dollar for wholesale settlement. At what stage is the wholesale CBDC now?

We have ongoing discussions with key industry players on asset tokenisation initiatives and the need for safe settlement assets, such as tokenised bank liabilities, regulated stablecoins and potentially CBDCs.

MAS said in 2022 that “there is no urgent need for a retail CBDC in Singapore” and in a paper the previous year that “a retail CBDC need not have cross-border use cases in the initial phase of issuance” to minimise risks. But last year, MAS announced a plan to work with China’s central bank to allow travellers from both countries to use the digital yuan in the two countries. Does that mean MAS has been reconsidering the use case of retail CBDCs?

MAS has assessed that the case for issuing a retail Singapore dollar CBDC in Singapore is not compelling at this juncture, as electronic payments in Singapore are quite pervasive, seamless and efficient.

The announcement in December 2023 about plans for a cross-border e-CNY pilot between China and Singapore was aimed at allowing travellers from both countries to use e-CNY for tourism spending. MAS has no plans to issue a retail Singapore dollar CBDC.

How does MAS see the future of wholesale CBDCs in Singapore and globally?

Wholesale CBDCs, alongside regulated stablecoins and tokenised bank liabilities, can serve as a common settlement asset to fully harness the potential of tokenisation. Tokenisation enables financial assets to be represented as digital tokens that can be exchanged directly without the need for intermediaries. This allows atomic settlement – the simultaneous exchange of two assets in real-time. It reduces settlement risk, duplicative reconciliation and the need for large funding accounts.

There is significant potential for wholesale CBDCs to reduce inefficiencies in cross-border payments and securities settlement.

To achieve this, MAS is working closely with policymakers and the financial industry, focusing on analysing business models and governance structures for cross-border foreign exchange settlement; developing technical standards and infrastructure to support cross-border connectivity, interoperability and atomic settlement of transactions across platforms; and establishing policy guidelines for the connectivity of digital currency infrastructure across borders.

Singapore has authorised a number of cryptocurrency exchanges to operate in the country. Meanwhile, some globally leading exchanges, such as Binance, have yet to secure a license. What are the major criteria for granting Major Payment Institution (MPI) or Standard Payment Institution (SPI) licenses to crypto exchanges?

MAS considers various factors when assessing license applications, including fit and proper criteria for management, effective compliance arrangements, and strong risk management capabilities, including the management of money laundering and terrorist financing risks.

MAS adopts an activity-based licensing framework for payment services, including digital payment token (DPT) services, under the Payment Services Act 2019 (PS Act). The objective of the regulatory framework is to apply appropriate risk-mitigating regulations for the specific payment service, while allowing latitude for growth and innovation. Since the commencement of the PS Act in January 2020, the number of licensed MPIs in Singapore has grown to over 200.

(Editor’s note: Where a payment service provider accepts, processes or executes payment transactions, or holds e-money exceeding prescribed thresholds, it will need to obtain an MPI licence. Otherwise, it will need to obtain an SPI licence.)

In April this year, the scope of regulated activities and regulatory requirements under the PS Act have expanded to address emerging risks in this rapidly evolving sector. MAS has received more than 250 applications for DPT services to date, of which, more than 30 were received after the expansion of the scope in April.

(Editor’s note: In Singapore, DPT services that are currently regulated include the buying/selling of DPTs, facilitating the exchange of DPTs, transmission of DPTs, provision of custodian wallet services for DPTs, as well as the brokering of DPTs. DPTs, such as cryptocurrencies, are intended to be a medium of exchange.)

What may be Singapore’s next step in regulating cryptocurrencies?

As the digital asset landscape and the risks evolve, we have continued to strengthen and refine our regulatory framework – to address risks as they arise, and to facilitate innovation as appropriate. To illustrate, I will briefly mention our approach to consumer protection and stablecoin regulations.

When cryptocurrencies first took off a few years ago, the key area of concern was money laundering and terrorist financing as well as technology risks. Correspondingly, our regulatory approach – the PS Act – focused on regulating DPT service providers for these risks.

Then there was increasing interest from consumers in crypto trading, as the value of the crypto market reached new peaks in 2021. We saw the collapse of several crypto firms following the crypto winter in 2022, which raised questions about how crypto firms conduct their business.

Global regulatory changes also spurred an accelerated focus on regulating crypto-asset services. We were among the first jurisdictions to introduce consumer access safeguards focused on retail consumers and business conduct requirements, and have, starting this year, implemented a number of measures in phases. They include disallowing the provision of debt financing or credit for DPT transactions, and requiring proper segregation and custody of customers’ assets to facilitate recovery of such assets in the event of a platform’s insolvency.

To strengthen market integrity, we have proposed measures to address concerns regarding market manipulation, unfair trading practices, and misleading conduct. We are currently reviewing the consultation feedback and will work with relevant stakeholders on these measures.

Another example is MAS’ stablecoin regulations. Among the types of DPTs, stablecoins have features that provide more value stability, with the potential to become a widely used payment instrument.

MAS sees good potential in stablecoins provided they are well-regulated to have a high degree of value stability. To this end, MAS finalised a regulatory approach for stablecoins, focusing on regulating the value stability risk of single-currency stablecoins. We are working on the necessary legislative amendments to the PS Act to implement the stablecoins framework.

Only stablecoin issuers that fulfil all requirements under the framework can apply for their stablecoins to be regulated by MAS as “MAS-regulated stablecoins”. This will allow the market to differentiate these stablecoins from other types that are not regulated for their value stability.

In developing these regulatory measures, we take an active role in setting global standards in digital asset regulations under the ongoing work with global standard-setting bodies. MAS, as chair of the International Organization of Securities Commissions’ Fintech Task Force, has also joined hands with global regulators to shape regulations for fintech initiatives. This helps to provide a consistent and coherent global response to cross-border risks while supporting innovations in the digital asset market.

How is MAS capturing opportunities in fintech?

We have been on the fintech journey for about 10 years, and I am heartened at how our fintech sector has been shaping up.

We started with fewer than 50 fintech firms in 2015, and today we have more than 1,400 fintech firms based in Singapore. More than 40 innovation labs from financial institutions and technology players serving the financial sector are based in Singapore. Since 2016, we have been hosting the Singapore FinTech Festival to gather leaders and experts from around the world in finance, technology and public policy. This year, the festival attracted more than 65,000 participants from more than 130 countries and regions.

Staying at the core of our fintech agenda is our conviction that technology and innovation must serve a larger purpose even as fintech fundamentally transforms financial services, creates new economic opportunities, and improves people’s lives.

For example, our early investments in digital infrastructure have been particularly effective and timely in enabling digital finance, such as during the Covid-19 pandemic. In this regard, Myinfo – the government-initiated personal data management platform for citizens and residents – helped to streamline customer due diligence and improve the onboarding experience, thereby removing the need for customers to physically visit a bank branch or conduct face-to-face verification.

What are the biggest challenges in fintech, and how do you prepare to address them?

The pace of innovation in the financial services landscape has not slowed and many real-world problems still await solutions. Some of our efforts in areas such as payments, sustainability and artificial intelligence (AI) exemplify this well.

Taking the payment space as an example, it is not enough that we can pay one another electronically within our countries 24/7 in real-time using just individuals’ mobile numbers or businesses’ unique entity numbers. According to a World Bank assessment, the average cost of remitting 200 US dollars across borders is about 6.2 per cent. Cross-border payments need to be made faster and less costly. Be it for migrant workers, students or small and midsize enterprises, it is the ability to send money across borders cheaper, faster, and securely that really matters.

In our endeavour to reshape cross-border payments, MAS has established cross-border PayNow linkages with counterpart systems overseas, such as Thailand’s PromptPay, and Malaysia’s DuitNow, hence making lower-value remittances much more accessible and cost-effective. We have also established a QR code linkage with Indonesia. MAS has plans to pilot cross-border e-CNY linkages between China and Singapore. These cross-border payment linkages serve to connect our businesses and people to key markets, regionally and internationally.

Another key challenge is the availability of good data to drive the flow of global green and transition finance. Today, there is a significant gap between the environmental, social and governance (ESG) data needs of key stakeholders, such as financial institutions, corporations and governments, and their ability to access ESG data. Data collection processes are manual and tedious, verification is costly, and the ESG reporting landscape is fragmented. However, quality data are key in mobilising capital towards green projects and solutions, measuring the commitment and impact of these investments, and combating greenwashing.

Fintech can be a key enabler in addressing these data challenges. In collaboration with the industry, MAS has launched Gprnt (pronounced “Greenprint”), an open and interoperable ESG data infrastructure that harnesses technology to facilitate the flow of high-quality ESG data between the financial sector and the real economy. We are also seeing many ESG- and sustainability-focused fintech startups appearing to solve problems in data, reporting and financing.

In addition, the future of finance is fast-changing with emerging technologies, such as generative AI, presenting both opportunities and risks. For example, challenges on the generative AI front include models hallucinating or fabricating facts, and malicious actors using the technology to create deepfakes and fake news.

A strong foundation of trust and governance is essential to ensure that AI is used responsibly and meets high standards. MAS and the financial industry co-created the fairness, ethics, accountability, transparency (Feat) principles and developed the Veritas assessment methodology and toolkit to help financial institutions assess whether their use of AI solutions is aligned with the feat principles. Building on this bedrock, MAS partnered with the industry in Project MindForge to identify the risks and opportunities of generative AI, and published a white paper in May. An industry-led AI Governance Handbook to aid the development of good AI governance practices is in the works and targeted to be finalised next year.

To support financial institutions’ innovation efforts and catalyse the adoption of innovative technologies, MAS recently announced up to S$100 million in additional grant funding from the Financial Sector Technology and Innovation scheme for AI and quantum technologies. CAIXIN GLOBAL

This interview is part of Caixin’s Asia Central Banking special reporting series.