Singapore Strives to be Home for Stablecoins, but Challenges Lie Ahead

While the vast American bureaucratic and legislative leviathan goes through the machinations of determining how to regulate stablecoins, the governor of Singapore’s Central Bank, the Monetary Authority of Singapore, has said that crypto has a place in the future of finance. But even if Singapore embraces digital assets and stablecoins, will the market really jump away from a world of USD-denominated stablecoins?

The market is clamoring for certainty, as Jerald David, President, of Arca Capital Management put it in an interview with Blockworks. All eyes are on DC as the wait for concrete policy — which can come in different flavors — is expected to be over soon, he explained. Clarity in the US could come from either a federal mandate from the SEC which would “trigger drastic action on the part of incumbents” in the stablecoin space, or a mandate to continue the current “patchwork of regulations” led by FinCen.”  

“Just like how we spent many months waiting for a bitcoin ETF, next we are going to be waiting for the SEC to issue guidance on stablecoins,” he told Blockworks. 

By contrast, in Singapore, this waiting and uncertainty doesn’t exist. Instead, this has all been replaced with codified rules for what authorities there call e-money. Representing the Singapore dollar, XSGD is the first project to take advantage of this, and its co-creator Aymeric Salley told Blockworks in a recent interview that he sees a future where the “USD will eventually only represent 50% or less of the total stablecoin value in circulation.”

But can such a future be wished into existence? It might not be that easy. Despite the regulatory uncertainty in DC, there really isn’t anything else out there like the US dollar.

Singapore has an active policy to discourage the internationalization of the SGD. In a paper written by One Chong Tee, the deputy managing director of MAS’ Financial Supervision Department, he explained that exchange rate is the principal tool of monetary policy in the country. Given the island nation’s reliance on imports, exchange rates, not money supply, is the key financial tool in their arsenal — which also provides resistance against short telling currency attacks. 

“Smaller economies are concerned that their currencies will no longer be relevant to their economy,” said National University of Singapore finance processor David Lee in an interview with Blockworks.

Is the SGD the only option for a non-USD stablecoin?

Vince Yang, founder of the DEX zkLink, pointed to Dubai as a potential solution. Yang, who is actively analyzing international crypto regulation as a necessary part of running a DEX, said that the country is building a solid compliance framework and a monetary policy that also integrates crypto. 

And this crypto-friendly monetary policy is based around the currency of the nation, the Dirham, being pegged to the US dollar. Since November 1997, the fiscal policy of the UAE has been to peg its currency to the USD at a rate of 3.6725 Dirham to the dollar.

“The market hates uncertainty, which is why it’s exploring regulatory hedges like the XSGD and fueling its growth,” Arca’s David said. “But the market also likes the USD. So with Dubai’s currency, you have the friendly regulatory support and the backing of the USD — just divide it by 3.6725, and you get a dollar.”

Most stablecoins are a proxy for the US-dollar. Could the future of stablecoins include proxies of a proxy of the greenback?