The Evolution of Money: Legal and Policy Considerations in a Digital Age

I. Introduction

In recent years, technology has been a key driver of development in the payment services space, enabling payment transactions which are more convenient, faster and cheaper.[1] Cryptocurrencies have emerged as a potential disrupter in the financial and payments world, with first generation cryptocurrencies such as Bitcoin and Ethereum being used as a medium of exchange and store of value within their respective blockchain networks.[2]

Over time, a new class of cryptocurrencies known as stablecoins has emerged, which are designed to maintain a stable value relative to another asset (typically a unit of fiat currency or commodity) or a basket of assets.[3] Notably, the stabilisation mechanisms underlying stablecoins allow them to overcome concerns of excessive price volatility associated with cryptocurrencies.[4] Of particular interest are stablecoins that purport to peg their value to a single fiat currency (e.g. Tether, which purports to be pegged 1-to-1 to the U.S. dollar) ("SCS"), given their stronger use case for payment and settlement.[5]

This emergence of cryptocurrencies and SCS has prompted a re-evaluation of how we understand, regulate and interact with money.[6] This article seeks to situate cryptocurrencies and SCS within the legal paradigm of money, by providing three different perspectives on the question of whether cryptocurrencies and SCS should be recognised as money in Singapore.

First, this article examines this question from the perspective of Singapore's payment services regulations. Next, this article traces the historical evolution of the concept of "money" in common law, which sheds light on the question of whether cryptocurrencies and SCS may be recognised as money for the purposes of enforcing obligations in private law. Finally, this article discusses various policy considerations that bear upon the question of whether cryptocurrencies and SCS should be recognised as a form of money in Singapore.

II. Considerations from the Perspective of Singapore’s Payment Services Regulations

From the perspective of Singapore's payment services regulations, there are impediments to treating and regulating cryptocurrencies and SCS as money. The initial regulatory policy of the Monetary Authority of Singapore ("MAS") regarding cryptocurrencies was geared towards anti-money laundering and countering the financing of terrorism concerns.[7] Over time, MAS' regulatory focus has expanded to address other concerns such as cryptocurrency speculation and technology risks.

In relation to cryptocurrency speculation, MAS has restricted the promotion of cryptocurrency services in public areas,[8] and is currently exploring the implementation of measures such as consumer suitability assessments and restrictions on investment incentives.[9]

Likewise, MAS has also recognised that intermediaries that facilitate transactions involving cryptocurrencies are vulnerable to cyber-attacks and system outages, which would affect individuals' access to their cryptocurrencies.[10] If cryptocurrencies and SCS are recognised as money in Singapore, any such cyber-attacks or system outages could be detrimental to the Singapore economy.

Given these concerns on cryptocurrency speculation and technology risks, it seems unlikely that MAS would be keen to recognise cryptocurrencies and SCS as money.

That said, MAS has not ruled out the possibility of digitising money in Singapore. Since 2016, MAS has been examining use cases of wholesale and retail central bank digital currencies ("CBDCs").[11]  In the case of retail CBDCs, MAS has assessed that there is no need to issue a Singapore dollar retail CBDC at this point, but acknowledged that it would be prudent to explore the technical and policy capabilities for its possible issuance in the future.[12] For instance, MAS has continued to examine use cases of retail CBDCs such as a purpose-bound digital Singapore dollar.[13] It remains a possibility that MAS will leverage technology to digitise money in a more controlled manner in the future, as opposed to an outright recognition of existing cryptocurrencies and SCS as money in Singapore.

III. A Private Law Perspective on Money

In considering how cryptocurrencies and SCS fit within the paradigm of "money" as understood by the common law, some useful insights may be gleaned from tracing the evolution of money in private law.

1. Evolution of money in the private law context

Money, in its original sense, initially referred strictly to coins issued by the State.[14] Incrementally, this legal definition was expanded to include banknotes, cheques and postal orders.[15]

In Moss v Hancock,[16] the English High Court notably defined money as "… that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities." Significantly, this definition referred to the economic function of money as a medium of exchange that is capable of discharging outstanding monetary obligations from the perspectives of both the payor and the payee.[17]

In addition to recognising the economic function of money in discharging obligations, the courts have gradually embraced awarding monetary remedies[18] and acknowledging claims in debt[19] that are denominated in foreign currencies as opposed to legal tender. Central to the courts’ reasoning in both instances was their growing appreciation that the law, and what it regarded as money, had to keep in step with commercial needs.

At this point, we offer a few preliminary observations. First, the definition of money is pluralistic, and may take on different meanings in different situations. Second, the definition of money has evolved over time to track societal and commercial developments, including the emergence of newer forms of money. Third, the courts have tended to take a cautious approach to the question of whether a particular form of money should be legally recognised as money, preferring a gradual and incremental expansion of the common law.

2. Situating cryptocurrencies and SCS within the common law paradigm of "money" 

In light of the above observations, how would cryptocurrencies and SCS fit within the common law paradigm of money?

As of March 2023, there are at least 22,000 different cryptocurrencies,[20] many of which closely resemble speculative assets rather than currency. On this basis alone, cryptocurrencies (including SCS) would be incompatible with the definition of money as set out in Moss v Hancock (i.e. it is not viewed as a universal medium of exchange). However, it remains to be seen whether an increased adoption of cryptocurrencies as a mode of payment [21] would one day result in the gradual and incremental expansion of the common law to include cryptocurrencies and SCS within the definition of money.

Perhaps one of the more compelling objections to recognising cryptocurrencies and SCS as money stems from the State Theory of Money,[22] under which cryptocurrencies and SCS would be disqualified as money as they are not issued nor endorsed by the Singapore government. That said, there is some room for debate whether the State Theory of Money should provide an insurmountable bar to recognising cryptocurrencies and SCS as money. As a matter of principle, the State Theory of Money may be too unduly restrictive to serve as a benchmark, given that it would necessarily exclude bank deposits and e-money[23] despite these being commonly treated as money.[24]

In view of the foregoing, there is no clear answer whether cryptocurrencies and SCS should be recognised as money in Singapore. The courts are not necessarily always in the best position to assess and determine whether particular cryptocurrencies and SCS are sufficiently "money-like" or have gained sufficient social acceptance and adoption to be recognised as money.

IV. Further Policy Considerations

Aside from the legal and regulatory perspectives discussed above, other policy considerations may also influence the recognition of cryptocurrencies and SCS as money in Singapore.

1. Commercial expectations of parties

For a start, recognising cryptocurrencies and SCS would serve to uphold the commercial expectations of parties who have chosen to transact in cryptocurrencies and/or SCS, who may be uninterested in the technical legal classification of money[25] but would nevertheless look to the law to provide a remedy in the event of wrongdoing.

If cryptocurrencies and SCS were not recognised as money, an intended payee of cryptocurrency and/or SCS may only sue for damages in the event of a dispute, the quantum of which would be subject to the application of common law concepts relating to causation, remoteness and mitigation. In contrast, if the law recognises cryptocurrencies and SCS as money, the intended payee of cryptocurrency and/or SCS could bring a straightforward action for an agreed sum to recover the unpaid debt.

That said, this consideration has to be weighed against the regulatory impediments discussed above and MAS’ broader monetary policy discussed below.

2. MAS' monetary policy

The Singapore government has taken the stance that the internationalisation of the Singapore dollar should not be encouraged, so as to retain the MAS' influence over exchange rates and to shield the Singapore dollar from speculative attacks.[26] Maintaining MAS' ability to influence exchange rates is crucial, given that the MAS uses the exchange rate as its principal tool for carrying out its monetary policy.[27] Thus, restricting the internationalisation of the Singapore dollar is crucial for ensuring that the effective conduct of MAS' monetary policy is not compromised.[28]

The objective of MAS' monetary policy is to maintain price stability,[29] and the central approach is the management of the exchange rate of the Singapore dollar against a trade-weighted basket of currencies of Singapore's major trading partners and competitors (i.e. the Singapore Dollar Nominal Effective Exchange Rate known as "S$NEER").[30] The MAS may intervene in the foreign exchange market whenever the S$NEER approaches the edge of a pre-defined acceptable band.[31] By way of example, this may take the form of purchasing Singapore dollar against the U.S. dollar to stem the depreciation of the Singapore dollar.[32]

It can be seen that a key pillar of MAS' monetary policy is the management of the overall supply of Singapore dollar in the foreign exchange market to control domestic inflation levels. A key question emerges as to whether such a policy tool would be made ineffectual if cryptocurrencies and SCS were to be recognised as a form of money in Singapore alongside the Singapore dollar. If cryptocurrencies and SCS were to be recognised as a form of money alongside the Singapore dollar, this could place the control of a portion of the money supply beyond MAS' control, given that the supply of cryptocurrencies and SCS are dependent on, among others, their minting, redemption, and/or burning functions.[33]

If cryptocurrencies and SCS were recognised as money in Singapore, it is possible to imagine a scenario where a surge in supply of cryptocurrencies and SCS beyond MAS' control leads to an excess supply of money in the Singapore economy, which could result in price instability within the Singapore economy. Faced with such a situation, MAS' ability to manage the S$NEER through intervention operations in the spot foreign exchange market[34] may be hampered, given that any purchase of Singapore dollars on the spot foreign exchange market may be outstripped by the surge in supply of cryptocurrencies and SCS recognised as money in Singapore.

Further, if cryptocurrencies and SCS were to be recognised as money in Singapore, this would result in the internationalisation of a portion of Singapore's money supply, by virtue of such assets existing on blockchains. Cryptocurrencies and SCS can be more widely held and used internationally, which would diminish MAS' ability to influence the exchange rates of such forms of money and shield them from speculative attacks.

V. Conclusion

As can be seen from the foregoing discussion, there are impediments to treating and regulating cryptocurrencies and SCS as money from the perspective of Singapore's payment services regulations. Likewise, having regard to the common law approach (as applied by the English and Singapore courts) towards defining money, there is no clear answer whether cryptocurrencies and SCS should be recognised as money by the Singapore courts. Finally, considerations from the perspective of MAS' monetary policy would also weigh against any recognition of cryptocurrencies and SCS as money in Singapore.

 

AUTHOR INFORMATION

Tian Sion Yoong is a Partner in the Financial Services Regulatory, the Derivatives & Structured Products, and the FinTech Practices, at WongPartnership LLP.
Email: sionyoong.tian@wongpartnership.com

Daniel Chan is a Partner in the Banking & Financial Disputes Practice, at WongPartnership LLP.
Email: daniel.chan@wongpartnership.com

 

REFERENCES

[1]             MAS Consultation Paper on the Payment Services Act 2019: Scope of E-Money and Digital Payment Tokens (December 2019) ("Consultation Paper on Scope of E-Money and Digital Payment Tokens") at paragraph 2.1.

[2]             Speech by Mr. Ravi Menon, Managing Director of MAS, "Yes to Digital Asset Innovation, No to Cryptocurrency Speculation" (29 August 2022) <https://www.mas.gov.sg/news/speeches/2022/yes-to-digital-asset-innovation-no-to-cryptocurrency-speculation> (last accessed 14 June 2023)).

[3]             MAS Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities (October 2022) ("Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities") at paragraph 2.4.

[4]             Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities at paragraphs 2.2 to 2.4.

[5]             Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities at paragraph 3.5.

[6]             Consultation Paper on Scope of E-Money and Digital Payment Tokens at paragraph 5 of Box A.

[7]             MAS Response to Feedback Received on Consultation Paper on Proposed Payment Services Bill (November 2018) at paragraph 3.19.

[8]             See generally, MAS Guidelines PS-G02 on Provision of Digital Payment Tokens Services to the Public (17 January 2022).

[9]             MAS Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services (October 2022) ("Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services") at paragraphs 3.2 to 3.18.

[10]           Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services at paragraphs 5.1 to 5.7.

[11]           MAS Whitepaper on Project Orchid: Programmable Digital SGD (31 October 2022) ("Project Orchid Whitepaper") at page 7. To explain, a wholesale CBDC is one whose access and use is restricted to financial institutions only, while a retail CBDC is one that is accessible by members of the public (Please refer to MAS Information Paper on Retail CBDCs: Economic Considerations in the Singapore Context (9 November 2021) ("Information Paper on Retail CBDCs") at page 7).

[12]           Information Paper on Retail CBDCs at pages 5 to 6.

[13]           See generally, Project Orchid Whitepaper. Such purpose-bound Singapore dollars enable senders to specify conditions, such as validity period and types of shops, when making transfers in digital Singapore dollars.

[14]           Perrin v Morgan [1943] AC 399 at 406 ("Perrin").

[15]           Miller v Race [1758] 1 Burr 452 at 459; Perrin, at 407.

[16]           [1899] 2 QB 111 at 116.

[17]         See also BP Exploration (Libya) v Hunt (No. 2) [1979] 1 WLR 783 at 799, where the English High Court observed that “[m]oney has the peculiar character of a universal medium of exchange. By its receipt, the recipient is inevitably benefitted…the loss suffered by the plaintiff is generally equal to the defendant's gain, so that no difficulty arises concerning the amount to be repaid”.

[18]           See Miliangos v George Frank (Textiles) Ltd [1976] AC 443, where the House of Lords recognised for the first time that it could award monetary remedies denominated in foreign currency. In doing so, Lord Wilberforce expressed at p 463 that the change "would enable the law to keep in step with commercial needs and with the majority of other countries facing similar problems". This point was endorsed by the Singapore Court of Appeal in Tatung Electronics v Binatone International [1991] 2 SLR(R) 231 (CA) at [16].

[19]           See Camdex International Ltd v Bank of Zambia [1997] CLC 714, where the English Court of Appeal construed a claim denominated in foreign currency as a claim for a monetary debt rather than a claim for a commodity. Implicit in the court's reasoning was the acknowledgement that the type of currency chosen by parties did not alter the nature of the obligation from being a monetary one.

[20]           Coryanne Hicks and Michael Adams, "Different Types of Cryptocurrencies", Forbes Advisor (15 March 2023) <https://www.forbes.com/advisor/investing/cryptocurrency/different-types-of-cryptocurrencies/> (last accessed 14 June 2023).

[21]           Claire Huang, "Confidence in crypto slides in Singapore, but 4 in 10 polled in survey still invested in it", The Straits Times (30 March 2023) <https://www.straitstimes.com/business/singapore-s-interest-in-crypto-still-high-even-as-confidence-slides#:~:text=The%20poll%20of%201%2C500%20people,Independent%20Reserve%20Cryptocurrency%20Index%20found> (last accessed 14 June 2023).

[22]           See Mann and Proctor on the Law of Money (8th Ed, Oxford University Press) at paragraph 1.18 (“Under the State Theory of Money, money has to be (i) be issued under the authority of the law in force within the State of issue; (ii) under the terms of that law, denominated by reference to a unit of account; and (iii) under the terms of that law, to serve as the universal means of exchange in the State of issue.”). In Algorand Foundation Ltd v Three Arrows Capital Pte Ltd (HC/CWU 246/2022), Coomaraswamy J opined that the application of the State Theory of Money is preferable in the context of the presumption of insolvency, on the basis that the State Theory of Money has the benefit of being easy to apply such that in most situations, there would be little dispute as to whether a particular intangible is or is not money. As at the date of this article, no written grounds for his honour's decision have been issued.

[23]           See for example, Payment Services Act 2019, s 2. “e‑money” means any electronically stored monetary value that — (a) is denominated in any currency, or pegged by its issuer to any currency; (b) has been paid for in advance to enable the making of payment transactions through the use of a payment account; (c) is accepted by a person other than its issuer; and (d) represents a claim on its issuer.

[24]           Matteo Solinas, "Pushing the Boundaries; A Tentative Taxonomy of Money in New Zealand Private Law" (2021) 52(3) Victoria University of Wellington Law Review 607-622 at 615.

[25]           United Kingdom Law Commission, Digital Assets: Consultation Paper (No. 256, 2022) at [19.166].

[26]           Reply to Parliamentary Question on Internationalisation of the Singapore Dollar (19 February 1998). Such notions of "non-internationalisation" of the Singapore dollar find expression in MAS Notices 109, 757, and 816, which limit the lending of Singapore dollar to non-resident financial institutions.

[27]           Frequently Asked Questions on Singapore's Monetary Policy Framework (last revised 21 April 2023) ("Monetary Policy FAQs"), preamble to paragraph 2.

[28]           MAS' Internationalisation of the Singapore Dollar Circular (6 December 2000) at paragraph 1.

[29]           This relates to the management of changes in Singapore dollar prices of imported goods and services, as well as the management of demand for domestic factors of production. See paragraph 2.3 of the Monetary Policy FAQs.

[30]           MAS Monograph on Monetary Policy Operations in Singapore (March 2013) ("Monetary Policy Operations in Singapore") at paragraph 2.2; Monetary Policy FAQs at paragraph 2.2.

[31]           Monetary Policy Operations in Singapore at paragraph 2.4.

[32]           Monetary Policy Operations in Singapore at paragraph 2.4.

[33]           For example, Bitcoin utilises a proof-of-work mechanism to issue new Bitcoins periodically. (Please see frequently asked questions at https://bitcoin.org/en/faq#mining (last accessed 14 June 2023)). XSGD, an SCS pegged to the Singapore dollar, has a minting and redemption feature (Please see paragraph 2.3 of the XSGD Factsheet at https://assets.website-files.com/600e34cbaf525c42912af8b6/60a4f099acf0ecc4c78965bb_StraitsX%20-%20Whitepaper_V1.1.pdf (last accessed 14 June 2023)), Likewise, USDC, an SCS pegged to the US dollar has a minting and burning feature (Please see the frequently asked questions at https://www.circle.com/en/usdc (last accessed 14 June 2023)).

[34]           Monetary Policy FAQs at paragraph 4.4.