In a groundbreaking move, the Monetary Authority of Singapore (MAS) has unveiled a novel addition to the world of Central Bank Digital Currencies (CBDCs) with its Orchid project. Termed Purpose Bound Money (PBM), this innovative currency form aims to streamline the CBDC system while serving specific purposes. PBM stands out due to its adherence to ERC-based standards, striving to establish a global benchmark. It boasts the potential to enhance transparency for government and charitable institutions, while also enabling meticulous tracking of individual finances. However, as with any significant development, PBM raises questions about potential unintended consequences, possibly leading to a more dystopian reality.
MAS distinguishes the programmable economy into two categories:
Programmable Payments: Embracing various automated payment methods akin to the existing credit card and point-of-sale systems.
Programmable Money: Money designed for a specific purpose, incapable of functioning otherwise or subject to specific restrictions.
PBM represents a fusion of these two aspects, albeit leaning more towards the money component. Similar to synthetic tokens, generating PBMs requires collateral. Essentially, by securing fiat currencies or tokenized assets such as bonds and securities, PBMs of equivalent value can be obtained.
Through programming, money transfer restrictions and limitations can be imposed, ensuring that only specific wallets are eligible to receive or not receive these funds. Furthermore, more intricate scenarios can be devised, such as prohibiting money transfers until a designated time or making them contingent upon the completion of another transaction.
While banks can offer comparable functionalities to some extent, PBM introduces a standardized global approach, distinguishing it as a quasi-global currency. During the experimentation phase, certain ERC standards were tested to minimize confusion and facilitate seamless adoption, allowing countries and banks lacking advanced infrastructures to quickly adapt by leveraging existing frameworks.
This represents a significant milestone for the Ethereum community and its associated culture, showcasing their capacity to successfully undertake the task of establishing standards typically entrusted to regulators and legislators. To create such standards, the technical aspects must be as user-friendly and straightforward as possible, ensuring a swift adaptation process. The cryptocurrency realm experiences rapid iterations, enabling prompt assessment of validity. This collaborative effort results in readily available structures that countries like Singapore can readily embrace, without years of painstaking development.
An Equilibrium of Transparency and Surveillance
PBM has the potential to foster transparency while concurrently limiting individual freedoms. For instance, it automates the conversion of funds in the Unemployment Fund into PBM, strictly allocated for workers' benefits. This helps prevent specific taxes and funds derived from aid activities from being misused, thereby increasing transparency.
However, the question arises as to whether similar transparency is demanded at an individual level. Suppose you acquire a loan for your business investment. The bank may grant the loan as PBM but request detailed information on the specific business within your workplace and the suppliers from whom you intend to purchase goods. Furthermore, it can restrict the transfer of the credited amount to other wallets. Even if not explicitly required, loans could be programmed to be transferable solely to businesses operating in a particular industry. Consequently, government transparency may inadvertently lead to increased traceability of individuals.
Incomplete Aspects and Potential Abuses
While PBM holds great promise in a tokenized economy, significant challenges remain. PBM is generated under specific conditions, which also possess a duration limit. Assets cannot remain in PBM indefinitely, as they are burned once the designated time elapses, with collateral returned to the collateral holder. This process presents potential avenues for abuse.
For example, let's consider a scenario where the International Monetary Fund (IMF) extends a loan in the form of PBM. If the borrowing country fails to meet the conditions, the PBM is burned, returning to the IMF. However, during this process, other transactions conducted using the PBM as collateral remain in limbo. This individual case exemplifies the potential uncertainty surrounding borrowers' ability to fulfill the requirements and unlock the PBM funds, which become usable only after a specific duration, such as two months.
As you may have noticed, parallels can be drawn between these challenges and the ones encountered in decentralized finance (DeFi) platforms. In recent years, platforms have grappled with issues related to synthetic assets, bridges, and collateral. While the whitepaper does not explicitly address these concerns, it suggests that MAS has yet to find definitive solutions. However, adopting an optimistic perspective, we can acknowledge that non-cryptocurrency entities might contribute their expertise, assisting in finding suitable resolutions for DeFi-related predicaments.
PBM: Fostering Economic Growth and Embracing Dollarization
CBDCs may not be universally embraced by every global player, particularly given the United States' cautious stance on the matter. However, when it comes to PBM, the divergence might not be as pronounced. PBM offers a standardized framework rather than a singular global currency. Consequently, the majority of the collateral backing PBM is likely to be denominated in USD, much like the dominance observed in the cryptocurrency sector. In essence, PBM operates as a gateway to greater dollarization. It facilitates the safe and seamless integration of tokenized assets into underdeveloped economies, providing a simple and common standard that helps mitigate the risks associated with diverse CBDC infrastructures.
Naturally, concerns arise when a particular asset gains excessive circulation, potentially overshadowing its underlying presence. Drawing a parallel to the "Coca Cola Zero" phenomenon, where the product name superseded the brand, a similar scenario could emerge with PBM. If PBM becomes so prevalent that it surpasses the prominence of the USD, the risk of diluting the brand value and experiencing a comparable loss becomes conceivable.
Stablecoins in the Era of CBDCs
MAS's documentation highlights four distinct categories of money-assets: CBDCs, Stable Currencies, PBM, and Tokenized Banking Products. Consequently, the emergence of CBDCs raises questions about the necessity of existing stablecoins.
Stable currencies may find their place within the regulatory frameworks of non-bank financial institutions or smaller banks with relatively flexible rules. As the market tilts towards CBDCs, stablecoins are unlikely to secure the lion's share. Nevertheless, decentralized stablecoins have yet to gain widespread traction. Consequently, stablecoins might continue to serve as alternative instruments within DeFi platforms, where CBDCs face stringent regulations or where systems await formal approval from governments.
Undoubtedly, PBM represents a highly advantageous monetary form. The division of responsibilities under the CBDC concept has been thoughtfully executed. We are now witnessing the tangible outcomes of central banks' trial projects, yielding resoundingly positive results thus far. The joint Rosalind project by the Bank of England and the Bank for International Settlements (BIS) garnered supportive statements regarding CBDCs. Gradually, we are moving closer to a tokenized economy. It is immensely gratifying to witness the cryptocurrency sector's accomplishments increasingly shaping the foundation of the global economy. The challenges confronted in the cryptocurrency market are swiftly becoming common challenges faced by global players. With an accelerated research and development process and an industry culture of open-source code development, we stand on the cusp of a remarkable breakthrough.
