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Singapore sounds cautious note on cryptocurrencies

Singapore’s ambition to become a global fintech centre has its limits.

The mania around bitcoin has helped catapult the question of digital currencies on to the desks of central bankers. Sweden is considering issuing one, while Axel Weber, the former head of Germany’s Bundesbank and now chairman of Switzerland’s UBS, said in November that the world’s monetary authorities should be open to creating digital currencies rather than confining the money supply to notes and coins.

Ravi Menon, the managing director of the Monetary Authority of Singapore, is not persuaded.

“What does it [central banks issuing digital currency to the non-bank public] mean?” asks Mr Menon in an interview with the Financial Times at his office in Singapore. “It means that you and I will have cryptocurrency deposits in the cloud with a private key that’s issued by the central bank. Whose liability is it? It’s the central bank’s liability directly to the individual.”
“Why would the central bank want to do that?” he adds, furrowing his brow. “If there’s any sense of nervousness about the banks, you will have a bank run; everybody is going to go into the central bank [with their deposits] . . . And, if people placed their deposits with central banks, who’s going to extend credit?”
His conclusion? “In practical terms, I think, that’s a long way off . . . one of the last things you’d want to think about doing.”

It is a stance that is at odds with the many fintechs — start-ups that want to harness technology to disrupt or improve the financial services industry — that the MAS is trying to lure to Singapore who would love to help the central bank develop an infrastructure that can support digital currencies. But the role Mr Menon has held since 2011 has always involved a delicate balancing act.

“That’s been our basic modus operandi, to be both a regulator and a promoter,” he says. “Our governing mandate, is very clear: financial stability has predominance over financial development.”


Share this graphic In the case of cryptocurrencies, that means the MAS is working on digital currency for interbank transfers, and has also invited companies to work with it on capital raising through digital currency (initial coin offerings) under limited circumstances.

The financial stability arm of the MAS is also keeping a watching brief on the convulsions of bitcoin and other cryptocurrencies. Bitcoin surged to a record $19,511 in the middle of December, according to Bloomberg data, has swung violently ever since and is now trading at about $13,830.

Mr Menon worries that a bitcoin crash could “potentially cast a larger shadow over fintech, over innovation . . . That’s a problem with bubbles, it’s too much and it undermines confidence.”

But he is not worried enough to contemplate a bailout for anyone caught up in a bitcoin collapse. “Why would you want to bail out people from their folly?” he asks.

“These [cryptocurrencies] are issued by private agents; I think the role of the government is to warn people, which several of us have done.” Beyond its ambitions in fintech, Singapore, along with Hong Kong, is the fastest growing wealth management hub in the world, with about $1.2tn of offshore money managed there, according to research from Boston Consulting Group.

Most global investment banks already have some presence in Singapore, and it might soon become a bigger hub for some of them. Mr Menon said a number of banks are considering running their Asian trading businesses locally rather than through Hong Kong.

“If the activity is here, I’d rather have the risk management here because then my supervisors can keep a close watch,” he says. “There’s a dialogue and deep understanding, so we always nudge them in that direction; we always tell them, look, 60 per cent of activity in Asia is done out of here . . . Why don’t you house your risk management here, rather than far-off London if it makes commercial sense to you? Because it makes prudential sense for us; it’s a preference but not an imperative.”
Several banks are considering shifting their Asian trading businesses to Hong Kong. Mr Menon insists that Singapore will not offer a more friendly regulatory regime to win banks’ markets or wealth management business. “We don’t want to have the kind of reputation some offshore havens have,” he says. “I think, in our actions the last couple of years, we’ve shown that this is a very strong law-and-order kind of place and keeping the system clean is really up there alongside keeping the system stable.”

Navigating the world of fintech and cryptocurrencies, however, may provide Mr Menon and the MAS its biggest challenge this year.


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