Stablecoins and Cross-Border Payments: What Singapore Businesses Should Know

11 minutes ago

3 min read

A Report by CYS Global Remit Digital Media Marketing Team

As banks and card networks experiment with tokenised settlement, businesses that pay overseas suppliers need a clear view of what stablecoins can and cannot do.

Hardly a week goes by without another bank or payment network announcing a stablecoin pilot. Tokenised dollars are being tested as a settlement layer for cross-border transactions, and much of the commentary casts them as a quicker, cheaper alternative to the correspondent banking chain. For a company that pays overseas suppliers every month, the relevant question is not whether the technology works, but whether it makes a real difference to a payment that must arrive on time, in the right currency and in the right account. Answering that begins with understanding what a stablecoin actually is.

What a stablecoin is

A stablecoin is a digital token, issued and transferred on a blockchain, whose value is pegged to a reference asset, most often the US dollar. Where Bitcoin can swing by several percentage points in a single day, a stablecoin is designed to remain at parity with the currency it tracks.

The peg is maintained in different ways. The most common model is reserve-backed: the issuer holds cash or short-term government securities equal to the value of the tokens in circulation. Others are collateralised by volatile crypto assets, while algorithmic designs attempt to control supply through code alone. The algorithmic approach has the poorest record, and the collapse of TerraUSD in 2022 remains its best-known failure.

The appeal

The case for stablecoins is straightforward. Transfers can be made at any hour, including weekends and public holidays, and settlement on a blockchain may take minutes rather than days. With fewer intermediaries in the chain, there is also the prospect of lower fees and fewer delays, two of the most common complaints about international transfers.

The practical limitations

Yet the token is only one leg of the journey. An overseas supplier will typically expect payment in local currency, into a local bank account, so value must be converted into and out of the token at each end. Those conversions carry their own costs and processing times, and in corridors where liquidity is thin, they can erode much of the speed gained on the blockchain.

Nor is the peg a guarantee. In March 2023, one of the largest dollar-backed stablecoins briefly traded well below its stated value after the bank holding part of its reserves failed. The episode passed, but it illustrated a basic point: a stablecoin is only as sound as the reserves behind it and the institutions that hold them.

Regulation adds a further layer of complexity. The Monetary Authority of Singapore has established a framework for single-currency stablecoins, covering reserve backing, redemption and disclosure, but rules differ widely from one jurisdiction to another. A payment that crosses several borders may fall under several regimes, each with its own expectations on customer identification, sanctions screening and the handling of disputes.

Questions to ask before relying on one

Any business weighing a stablecoin-based payment route should be able to answer five questions:

What assets back the token, and are the reserves independently verified?
Is the provider licensed in both Singapore and the receiving country?
At what rate are funds converted into local currency, and who bears the cost?
What recourse is available if a payment is delayed, misdirected or frozen?
How are anti-money laundering and sanctions requirements met at each stage of the transfer?

Our perspective

CYS Global Remit settles cross-border payments through the regulated banking system and does not use digital currencies. In our view, what small and medium-sized enterprises value most is predictability: knowing what a transfer will cost, when it will arrive, and that the funds will reach the intended account in the correct currency under a clear regulatory framework. For a company settling an invoice, those assurances usually outweigh a saving of a few hours in transfer time.

None of this amounts to a dismissal of the technology. Stablecoins are likely to remain part of the conversation, and the regulatory picture will keep evolving. For now, the sensible approach is to treat them as one option among several, to test the claims made on their behalf, and to choose a payment route according to the needs of the business rather than the direction of the headlines.

To discuss your cross-border payment requirements, contact the CYS team at enquiry@cys.com.sg.

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