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Davos 2021: Singapore senior minister on finding the dark horse in digital currency race

Davos 2021: Singapore senior minister on finding the dark horse in digital currency race

Finextra is at Davos this year, covering global insights into the impact fintech has on wider issues such as responding to Covid-19, restoring economic growth and advancing a new social contract.

In the face of new players developing stablecoins and alternative payment systems, Tharman Shangaratnam, senior minister of the government of Singapore, thinks the "old world" two-tier system of central and commercial banks need to catch up with this new reality.

Speaking as part of the World Economic Forum's second panel on digital currencies at Davos 2021, he believes central banks need to take an extremely open minded approach to the development of digital currencies and avoid crowding out private players through backing certain horses.

"The attitude of central banks shouldn't be to pick winners," he says.

"They should want to find a dark horse - a new system of bank-based payment systems becoming as efficient as new players at reducing costs and speeding up processing times."

Shangaratnam believes that if central and commercial banks are concerned by the innovative and fast-growing non-bank players disrupting the financial world, "that set of horses has bolted the stable," continuing the equine theme.

This comes with the danger of creating monopolies of closed ecosystems dominated by private stablecoins or wallet providers, presumably with Big Tech also flexing their muscles.

"These are like walled gardens. To have a vibrant ecosystem you need to protect biodiversity." Shangaratnam says.

Central banks and other financial institutions, therefore, must decide what to do with this landscape to prevent closed-off ecosystems conducive to creating monopolies.

"We need to think of this world in hybrid terms and how we can achieve the best synergy," Shangaratnam adds.

"The payments system is a public good, so we need to be thinking about interoperability, safety and transparency relating to digital identity to curb illicit finance."

New players would find it easy to ride on the back of central bank digital currency ecosystems to offer services that address cost and efficiency in payments and remittance and bringing the unbanked into the world's financial system.

Shangaratnam cites Cambodia as an example of this. The Southeast Asian country launched a 'quasi-CBDC' in November, the wallet for which effectively comes with a bank account, which could be a spur to financial inclusion.

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