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‘Private cryptocurrencies have failed the test of money’
Former MAS chief sees future in CBDCs, tokenized bank liabilities and well-regulated stablecoins
Tom King 4 Jul 2024

Artificial intelligence (AI), quantum computing, and tokenization have converged to reshape the landscape of the financial industry, says Ravi Menon, former managing director of the Monetary Authority of Singapore (MAS) and now ambassador for climate action and senior adviser to the National Climate Change Secretariat of Singapore.

But while embracing financial technology, the former financial overseer of the city-state pulls no punches in expressing his disdain for private cryptocurrencies.

Speaking at the recent Point Zero Forum in Zurich, Menon stresses: “Private cryptocurrencies have failed the test of money. They have performed poorly as a medium of exchange or store of value, beyond that for purposes of speculation. CBDCs [central bank digital currencies], tokenized bank liabilities, and well-regulated stablecoins are much more promising as digital money.”

Menon is supporting policy efforts to facilitate digital assets, mentioning the MAS’ Project Guardian, which aims to integrate digital assets into mainstream financial operations.

“Tokenization involves representing ownership rights over any asset as a digital token, enabling direct exchange and fractionalization. This could eliminate intermediaries, reduce settlement risks, and allow broader investor access,” he says.

Significant progress has been made in tokenizing various financial assets, such as foreign exchange, bonds, and funds. Examples include the BNY and OCBC Bank's cross-border foreign exchange tokenized solution.

Menon also underscores the need for interoperable digital asset networks to realize the vision of seamless global financial transactions. Such efforts to create open and compliant digital asset networks include the Bank of International Settlement's "Finternet" concept and Singapore's Global Layer One project.

Transformative change

Menon considers AI as the second megatrend in technology that will transform the financial industry. Its diverse applications range from deep learning models used by Ant International to assess creditworthiness to generative AI for fraud detection and personalized financial advice.

At the same time, he stresses the importance of governance in AI, of addressing issues like data privacy, explainability, accountability, and outcome acceptability. He calls for fast and harmonized AI regulation, citing the European Union’s AI Act as a model for comprehensive regulation, while contrasting it with the voluntary commitments in the United States and China's targeted approach.

Menon also addresses the nascent field of quantum computing, which he believes could revolutionize financial services through quantum optimization and simulation.

However, he warns of substantial risks, particularly to encryption protocols, and highlights proactive efforts to manage these risks, such as Singapore and Japan's NQSN+ Digital Connectivity Blueprint and the BIS Innovation Hub's Project Leap.

Amid all these rapid developments, Menon stresses that humans have a crucial role to play in managing the application of technology in the financial sector. 

“The financial services industry may well be on the cusp of even more transformative change, powered by asset tokenization, artificial intelligence, and quantum computing,” he says.

“There are deeply impactful benefits to harness from these technologies, but that depends critically on how we manage the substantial risks associated with these technologies. The answer lies in us, not the technologies.” 

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