As crypto worries deepen, focus on the blockchain technology: MAS fintech chief

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ILLUSTRATION: Megan Rexazin from Pixabay

Despite headlines on volatile cryptocurrencies of late, the technology industry should focus on using blockchain and the underlying distributed ledger innovations to overcome challenges in areas such as trade finance and cross-border transactions, said Sopnendu Mohanty, chief fintech officer of the Monetary Authority of Singapore (MAS).

Calling the collapse of Luna a distraction, he said the technology behind such cryptocurrencies should be better used to solve a key problem in fintech – the secure movement of money and information.

If blockchain could make the underlying process better than existing networks, then the new technology would be able to find new use cases, he said at a conference at the Singapore Blockchain Week yesterday.

In five years, he predicted that trade finance would be impacted the most by blockchain technology, which will be key to Singapore because of the country’s status as a global trading hub.

Capital markets would also be impacted by innovations in blockchain, especially with Singapore as a place for various trades and settlements, he noted.

Blockchain will also be useful for tracking carbon credits as well as advancing sustainably sourced products in future, he added.

The remarks reflect the Singapore regulator’s strong interest in the transformative technology, which could potentially create new asset classes such as non-fungible tokens (NFTs) and more efficiently carry out many of the roles held by banks today.

However, the government has been wary in its embrace of cryptocurrencies, given their volatility and frequent problems with fraud and security.

The MAS has repeatedly warned the public not to speculate in cryptocurrencies. It has also tried to protect retail investors by banning advertisements targeting them.

The recent woes of Singapore-registered companies such as crypto fund Three Arrows Capital and Terraform Labs, which is behind the Luna and TerraUSD cryptocurrencies, has softened earlier calls for Singapore to follow a “light touch” approach, like that of Dubai’s, to attract more such players.

In an earlier panel discussion on regulations, proponents of cryptocurrencies had asked if Singapore could standardise its rules with other similar investment products.

Nizam Ismail, chief executive officer of Ethikom Consultancy, suggested that regulators target the risks involved instead of the type of assets being traded.

This way, he argued, cryptocurrencies would be regulated similarly to other capital market products, which also involve strict rules against market rigging, for example.

In his separate discussion later, Sopnendu said regulators have to ensure that consumers are protected, illegal activities like money laundering are dealt with, and the market’s integrity and stability are maintained.

In some cases, there is a limit to what regulators can do. NFTs, for example, have seen a boom and bust in prices of late, but yet there have been willing buyers and sellers.

Sopnendu said: “If you take a picture, put it on the Net and someone pays a million dollars, what can we do?”

He pointed to the era that began the late 1990s and went through a period of hype and correction before the Internet became a useful tool in everyday life today.

“A lot of people lost money,” he said, of early investors in the technologies involved.

To take off, blockchain similarly needs consumer adoption, a business model and the infrastructure, all of which are still unclear, he noted.

He also poured cold water on media reports that Singapore plans to have a central bank digital currency (CBDC), because it was too early and there were no clear answers for how things could pan out.

A CBDC could be useful, say, for a direct transfer during a crisis when it is needed urgently, he explained, but in a regular environment, cheaper and currently available options such as PayNow can be used.

Singapore has indeed run cross-border interoperability tests of CBDC with other central banks in the region as well as tested it for clearing and settlement.

While it has been interested in learning how the technology works, it has been careful about its widespread impact. That approach applies generally to blockchain as well.

Referring to blockchain as a technology originally conceived to authenticate documents in the 1990s, Sopnendu cautioned that it still has to prove itself in the ways it is deployed.

“Don’t try to use blockchain to solve everything,” he stressed. “Look at it (a problem) broadly and apply different technology stacks to solve the problem in the most efficient way.”

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