As the digital asset ecosystem grows, it will be natural for linkages between the traditional banking system and digital assets to grow. There is risk of contagion to financial markets through exposures of financial institutions to digital assets. MAS is working closely with other regulators to design a prudential framework for banks’ exposures to digital assets. This framework will provide banks with clarity on how to measure the risks of their digital asset exposures, and maintain adequate capital to address these risks. This will reduce risks of spillovers into the traditional banking system. INNOVATION AND REGULATION HAND-IN-HAND Singapore wants to be a hub for innovative and responsible digital asset activities that enhance efficiency and create economic value. The development strategy and regulatory approach for digital assets that I have described go hand-in-hand towards achieving this. Innovation and regulation are not incapable of co-existing. We do not split the difference by being less stringent in our regulation or being less facilitative of innovation. MAS’ development strategy makes Singapore one of the most conducive and facilitative jurisdictions for digital assets. At the same time, MAS’ evolving regulatory approach makes Singapore one of the most comprehensive in managing the risks of digital assets, and among the strictest in areas like discouraging retail investments in cryptocurrencies. I hope this presentation has made clear that MAS’ facilitative posture on digital asset activities and restrictive stance on cryptocurrency speculation are not contradictory.

Tokenisation allows the assets to be traded securely and seamlessly without the need for intermediaries. There are already interesting applications in Singapore of tokenisation of both financial and real assets. UOB Bank has piloted the issuance of a $ million digital bond on Marketnode’s servicing platform that facilitates a seamless workflow. OCBC Bank has partnered with MetaVerse Green Exchange to develop green financing products using tokenised carbon credits to help companies offset their carbon emissions. MAS itself has launched an initiative – called Project Guardian – to explore the potential of tokenised real economy and financial assets. The first industry pilot, led by DBS Bank, JP Morgan, SBI Group and Marketnode, will explore the institutional trading of tokenised bonds and deposits to improve efficiency and liquidity in wholesale funding markets. ENABLE DIGITAL CURRENCY CONNECTIVITY A digital asset ecosystem needs a medium of exchange to facilitate transactions – three popular candidates are cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs). How does MAS view each of them? MAS regards cryptocurrencies as unsuitable for use as money and as highly hazardous for retail investors. Cryptocurrencies lack the three fundamental qualities of money: medium of exchange, store of value, and unit of account. As I mentioned earlier, cryptocurrencies serve a useful function within a blockchain network – to reward the participants who help to validate and maintain the record of transactions on the distributed ledger. But outside a blockchain network, cryptocurrencies serve no useful function except as a vehicle for speculation.