MAS managing director Ravi Menon said at the Fintech Conference yesterday that under the pilot system, banks will deposit cash as collateral with the MAS in exchange for MAS-issued digital currency.
The banks can later redeem the digital currency for cash.
The banks can pay each other directly with this digital currency instead of first sending payment instructions through the MAS.
“This is an improvement over current large-value payment systems that are centrally operated,” Menon said. “It strengthens resilience and lowers costs.”
The project, he added, marks the first step in the MAS’s exploration of ways to harness the potential of central bank-issued digital currency.
It is also just one of several initiatives that the MAS has embarked on in its quest to create a smart financial centre in Singapore, Menon said at the conference, which is part of a week-long Singapore Fintech Festival.
For example, he also announced that the MAS was yesterday publishing its “regulatory sandbox” guidelines (software security mechanism) to encourage and enable experimentation of innovative technology to deliver financial products and services.

Guidelines
These guidelines incorporate feedback from the public and learning points from actual sandbox applications, and clarify the MAS’s expectations on the sandbox, while allowing for greater flexibility to firms looking to enter a sandbox.
Menon also announced the launch of a “finance-as-a-service: API PlayBook”, developed by the MAS and the Association of Banks in Singapore.
API, or application programming interface, is a set of codes for building software and applications.
A company can open up its API so that third-party developers can integrate them into new apps. For example, a start-up could make use of the Google Maps API to build a new app that has a map function within it.
The playbook includes common and useful APIs that financial institutions could expose and standardised as digital services, to foster collaboration within the financial sector and with other sectors.
It also includes technical and information security standards for financial institutions and broader financial technology, or fintech, ecosystem to securely share data and conduct transactions, as well as remove technical uncertainties that may hinder the adoption of APIs.
Menon also announced yesterday that the MAS will now allow insurers to offer online a full suite of life insurance products without advice.
Up until now, insurers were only allowed to offer online, without advice, simple term life and direct purchase policies with broadly standardised features.
The MAS will be issuing guidance on the safeguards to be put in place for online distribution of life insurance products.