The Monetary Authority of Singapore (MAS) will soon test how it could issue digital currency using a blockchain-based interbank payment system.

According to Bloomberg, the planned proof-of-concept will be supported by blockchain consortium R3CEV, as well as eight banks and an unnamed local stock exchange. The Development Bank of Singapore, HSBC, Bank of America, JPMorgan, Credit Suisse and Bank of Tokyo-Mitsubishi are all said to be participating.

In a speech on Wednesday, MAS managing director Ravi Menon said the test could come to include other central banks. Further, he credited the bank's desire to remove cost and friction from traditional bank transactions as the motivation for the effort.

Menon said:

Bloomberg reports the trial would find banks depositing cash as collateral with MAS, which would then issue a digital currency to participants. The digital currency could then be exchanged among participants in the system and later redeemed for cash.

The forthcoming trial bears similarities to a previously announced effort from UBS, Deutsche Bank, Banco Santander and startup Clearmatics in August.

Called Utility Settlement Coin, the project envisioned how a central bank could issue digital currency that could then be redeemed for cash held by a central bank.

Singapore dollars via Shutterstock