Purpose Bound Money (PBM) Technical Whitepaper published by MAS

22 Jun 2023

The Monetary Authority of Singapore (“MAS”) has published a whitepaper proposing a common protocol to specify conditions upon which underlying digital money (such as central bank digital currencies, tokenised bank deposits and stablecoins) can be used. Specifically, the model envisaged is purpose bound money (“PBM”).

The PBM protocol considered in the whitepaper is designed to work with different ledger technologies and forms of money. The whitepaper includes technical specifications which outline the PBM lifecycle and business and operating models for programming the money to be transferred only upon satisfaction of certain conditions.

Interestingly, the PBM protocol envisages the use of blockchain technology to achieve its desired objectives. Smart contract code (which allows the automatic execution of transactions upon satisfaction of pre-programmed conditions) could be used to specify the conditions upon which the underlying digital money subject of the PBM protocol could be used. In this regard, as a suggestion, ERC-1155 multi token smart contract was considered by MAS as a possible standard for use. Relatedly, the underlying digital money subject of the transfer / use, could be implemented in the form of an ERC-20 compatible fungible token smart contract.

Some design considerations the MAS has flagged for consideration include the following:

1. Interoperability – the system’s interoperability should be considered so that the implementation of PBMs by different service providers do not lead to fragmentation in the payment ecosystem. The goal is to enable the PBM to be used across different platforms, wallets, payment systems and rails.
2. Digital money – the digital money underlying the PBM should be considered since it is likely an asset that attracts regulatory oversight. For instance, the digital money could constitute reserve assets backing the digital money or alternatively, the token may be designed to represent an obligation to pay instead. To the extent that there is an international element to it, it is important to note that the regulatory treatment of such PBMs varies across jurisdictions.
3. Privacy – the extent to which data in respect of the transaction can be collected and used by individual institutions should also be considered since there may be concerns that consumer behaviour and patterns be tracked and exploited against a user’s wishes.
4. Policy considerations – there are also policy considerations as there may be concerns with implementing constraints on how individuals spend money.
5. Digital readiness – the digital savviness of stakeholders to be factored in, particularly to keep the user experience intuitive and accessible, especially to more vulnerable segments of the population.
6. Secure programming – this is particularly important given the heavy reliance on smart contract code. Ensuring that the code is safe and works as intended could be done by engaging trusted entities charged with the task of verifying the correctness of logic, assessing and preventing potential vulnerabilities and providing standardised oracle data.

Trials to test the usage of PBM are underway: Amazon, FAZZ and Grab are collaboration on a pilot use case involving escrow arrangements for online retail payments. DBS, Grab, FAZZ, NETS and UOB will trial the use of PBM based cashback and incentives to improve consumer experiences.

You may read more about the whitepaper here.