Why Singapore is moving to regulate stablecoins

Written by Kapronasia || August 24 2023

With its announcement of stablecoin regulations, Singapore is betting that these “safer” cryptocurrencies have staying power and will play an increasingly important role in the future of financial services. The decision is consistent with the city-state’s interest in developing itself as a digital asset hub for institutional investors. It also gives Singapore a leg up on Hong Kong, which is also trying to be a cryptocurrency hub of sorts, but has yet to introduce any regulatory framework for stablecoins.

With its regulatory framework, the Monetary Authority of Singapore (MAS) aims to legitimize fiat-backed stablecoins as a credible digital medium of exchange that can bridge the gap between fiat currencies and the digital asset ecosystem. To that end, the MAS will require reserves that back stablecoins to be held in low-risk and highly liquid assets that must equal or exceed the value of the stablecoin in circulation at all times. Stablecoin issuers are required to return the par value of the digital currency to holders within five business days of a redemption request. Further, issuers must also provide “appropriate disclosures” to users, among them the audit results of reserves. This stablecoin regulatory framework will apply to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency issued in the city-state.

At the same time, other types of stablecoins – SCS issued outside of Singapore or pegged to to other currencies or assets – will continue to be subject to the existing DPT regulatory regime. “MAS will continue to monitor developments in the stablecoin landscape, with a view to bringing other types of tokens into the SCS framework,” the regulator said in its consultation paper.

While this is undoubtedly a win for the overall cryptocurrency ecosystem, it is early days to assess its overall impact. On the one hand, while Europe has introduced MiCA and Japan and Hong Kong are also moving to regulate stablecoins, the world’s two largest economies have yet to emerge as pro-stablecoin. For its part, China seems far more interested in its digital renminbi, while the U.S. may pass legislation that would require the U.S. Federal Reserve to write requirements for issuing stablecoins while preserving the authority of state regulators. Additionally, India, like China, seems more focused on a digital fiat currency.

For stablecoins to be adopted on a large scale globally, it is likely that the U.S. – as the biggest player in the global financial system – needs to embrace them. Additionally, if Asia’s two largest emerging economies both reject stablecoins, it is questionable how much traction they will gain.

In July, Reserve Bank of India Deputy Governor Rabi Sankar said bluntly that he saw CBDCs as more “stable” than stablecoins, citing a risk of dollarization. "We have to be very careful about allowing these sorts of instruments... From the past experience in other countries, it is an existential threat to policy sovereignty,” he said.