Introduction
‘Money’, according to Adam Smith, is the ‘great wheel of circulation [which] is altogether different from the goods which are circulated by means of it.’Footnote 1 The rise of digital currencies – from the creation of Bitcoin in 2009Footnote 2 to the global momentum towards stablecoins since 2023 – has heralded a new phase in which tokenisation and blockchain technology have the potential to change our conceptions of money and the forms that it can take.Footnote 3 Yet, the increasing commercialisation of digital currencies precipitated a wave of high-profile insolvencies, most notably the collapse of FTX in 2022.Footnote 4 This article is agnostic about the use of digital currencies, and acknowledges that there are potential benefits and risks in the commercialisation of their use in the financial system.Footnote 5 Rather, the article contends that the pre-existing state-centric theoretical conception of ‘money’ in lawFootnote 6 needs to adapt to the increasing use of digital currencies (particularly privately-issued stablecoins) as a means of payment, in light of the rapid technological, commercial, and regulatory developments that have taken place in recent years.
The article’s key argument is that a distinction should be made between digital currencies that serve as a means of payment, and other ‘investment-like’ digital assets that serve primarily as a means of investment or speculation, and which function more like financial instruments. More specifically, the article argues that certain ‘payment-like’ digital currencies − namely, stablecoins issued by private institutions regulated by the state, and which are backed by reserves and pegged to a single fiat currency on a one-to-one basis (referred to as single-currency pegged stablecoins or SCS) − may be recognised under the common law as money. Consequently, such stablecoins can be treated as the functional equivalent of fiat currency. While the scope of this article is confined to the legal characterisation of SCS in the context of the common law, it recognises that this characterisation is influenced, at least in part, by the broader legislative and regulatory developments with respect to SCS.Footnote 7 In this light, this article considers this issue on the basis of how SCS are conceived under the proposed SCS regulatory frameworks that have emerged in Singapore and the United Kingdom (UK), which purport to regulate and legitimise SCS as a means of payment for broader use by the public. In view of this, the legal characterisation of money under the common law, it is argued, should respond to, and facilitate the use of, such digital currencies as a means of payment that is likely to increase as a result of these regulatory developments in Singapore and the UK.
To this end, this article proposes a substance over form approach to the legal characterisation of ‘money’. Under this proposed characterisation, rather than determining the status of an instrument by its legal form or origin, the touchstone of the monetary status of an instrument is whether it serves as an effective means of the transfer of monetary value between parties, regardless of its underlying technology. This is not to say that all SCS may necessarily serve this function – instead, their characterisation as money depends on the specific functional characteristics of the particular SCS in question, and whether it is subject to the appropriate regulatory safeguards that enable them to serve this monetary function, as discussed below. The potential recognition of payment-like digital currencies as money has broader implications for creditor protection and the mitigation of insolvency risks in the enforcement of payment claims,Footnote 8 as well as their interaction with the broader payment system.
The article first sets out the theoretical context for the discussion by analysing the conceptual tensions between the existing state-centric legal conception of money and digital currencies due to the self-governing and decentralised nature of the latter. It also explains the attendant legal consequences and implications if SCS are (or are not) legally characterised as money. This is followed by an analysis of the emerging Singapore and UK legislative and regulatory developments with respect to SCS, which provide the basis for SCS to operate as payment-like digital currencies in enabling the transfer of monetary value. Then, the article evaluates the potential for SCS to be characterised as money under the common law, along with the challenges and limitations with respect to such recognition, before concluding.
Money as a Technology-Neutral Means of the Transfer of Monetary Value
Nothing is more pervasive in everyday commercial transactions than money. Money is often defined by its capacity to fulfil the core economic functions of serving as a medium of exchange, store of value, and unit of account.Footnote 9 Yet, the legal conception of money remains contested. As a starting point, money can be distinguished from what it is not. As noted by Adam Smith above,Footnote 10 money serves as a medium of exchange, which distinguishes it from commodities, which are the objects of exchange.Footnote 11 This distinction is reflected in Moss v Hancock, in which money is defined 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.Footnote 12
A further important characteristic of money is that it is issued and exchanged on the basis of its nominal value.Footnote 13 The nominalism principle means that the payee is entitled to be paid on the basis of the par value of the money of account, regardless of fluctuations in the strength of the currency due to inflation or changes in the exchange rate, subject to the parties’ agreement.Footnote 14 This distinguishes money from securities such as shares, which are traded on the expectation of profit at market value which fluctuates.Footnote 15 The stability of the nominal value that money holds allows it to be used for the discharge of debts and payment for goods and services.
Means of Payment
At its simplest, money refers to fiat currency in the form of notes and coins issued by the state as legal tender.Footnote 16 Legal tender means that the currency is recognised by law to be valid for the settlement of debts and discharge of obligations.Footnote 17 As a liability of the central bank which is backed by the state’s credible commitment, this allows central bank currency (also known as ‘public’ money)Footnote 18 to be risk-free.Footnote 19 Public money also comprises central bank reserves held by commercial banks and certain financial institutions.Footnote 20 Central bank money accords with the influential ‘state theory’ of money, which views money as a tangible property that is a creation of the state, which determines the measure of value of money.Footnote 21
Public money may be distinguished from ‘private’ money that is issued by private institutions, such as bank money issued by commercial banks.Footnote 22 Under the common law, courts have recognised bank money in the form of deposits as money,Footnote 23 which represent the claim of the depositor against the bank in respect of the monetary value deposited in the bank account.Footnote 24 Bank money is created by commercial banks when they lend out deposits to borrowers, such as through loans, lines of credit, and overdrafts.Footnote 25 More recently, legislation has recognised e-money as a form of money.Footnote 26 E-money transactions involve ‘peer-to-peer’ transfers of monetary value issued by non-bank payment service providers, such as Paypal, that have grown in popularity with increased digitisation.Footnote 27 These developments demonstrate the important role that non-bank private entities play in payments innovation, which supports the interaction and competition between public and private money in the payments ecosystem in the next stages of digitisation.Footnote 28 Digital payments such as e-money, card payments, and credit transfers surged following the COVID-19 pandemic and the increase in e-commerce.Footnote 29
In light of these developments, it is open to question whether the predominant ‘state-theory’ of money sufficiently accounts for the increasing privatisation of money issued by banks and non-bank payment service providers. The ‘state-theory’ of money would also not account for the increasing acceptance of stablecoins as a means of payment, as we shall discuss further below. Greater public acceptance of private money would appear to be better explained by the ‘societary theory’ of money, which argues that it is public usage and acceptance – rather than the state – that ultimately determines whether something is money.Footnote 30
A more recent conception of money is the ‘institutional theory’, which holds that money is ‘no more than credit against an obligor’, the acceptance of which as a medium of exchange is premised on a broad institutional framework.Footnote 31 This provides a more nuanced account of the existing ‘two-tier’ payments ecosystem that is dominated by bank transfers, which are anchored by central bank money as the ultimate settlement asset.Footnote 32 Under this system, the central bank facilitates the settlement finality of inter-bank transfers against central bank reserves as the anchoring risk-free asset.Footnote 33 This is supported by prudential requirements and banking supervision, deposit insurance schemes, and the central bank serving as the backstop liquidity provider in the event of liquidity pressures.Footnote 34 The anchoring role of central bank money underpins public trust in commercial bank money by effectively underwriting the credit risks of commercial bank money, which reduces the transaction costs of parties settling transactions in commercial bank money. Public trust is also maintained by the convertibility of bank money into risk-free central bank money by obtaining cash at par.Footnote 35
Ultimately, in order for an instrument to qualify as ‘money’, it must be capable of fulfilling the social expectation that it can be used for the transfer of monetary value. In other words, it must be capable of serving as a means of payment either by the physical transfer of the asset itself (like cash), or through other channels such as using a payment instrument.Footnote 36 Indeed, whether or not something is ‘money’ as conventionally understood, the more important question is whether the instrument fulfils the functions of payment in practical terms,Footnote 37 regardless of whether it is legal tender, publicly- or privately-issued, or exists in physical or digital form. Payment for this purpose refers to ‘any commercially recognised method of transferring funds the results of which is to give the transferee the unconditional right to the immediate use of the funds transferred’.Footnote 38 This may be cash or the ‘equivalent of cash’ as the parties may agree.Footnote 39 Payment may be made by means other than cash as agreed so long as the payee has unconditional access to the monetary value transferred.Footnote 40
Tokenisation of Money
As the ultimate liquid asset, money must also be storable, fungible, and divisible.Footnote 41 In this respect, the tokenisation of money facilitates liquidity and the transfer of monetary value.Footnote 42 Tokenisation refers to the issue and representation of assets in digital form via technologies like distributed ledgers.Footnote 43 Digital currencies such as Bitcoin are conceived to be issued, storable, and transferable using a public and immutable distributed ledger of transactions (ie the blockchain) through cryptographic encryption. Bitcoin’s purpose was to be ‘[a] purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.’Footnote 44 Holders store their digital currencies in a software programme that is associated with unique identifiers, namely, the holder’s private key and public key (ie a digital wallet).Footnote 45 Unlike conventional money, they are transferred not through centralised intermediaries such as banks, but by way of a decentralised network of miners, which process, update, and verify the record of transactions on the blockchain through consensus.Footnote 46 This consensus may be achieved using different protocols such as ‘proof of work’ and ‘proof of stake’, which are used by Bitcoin and Ethereum respectively.Footnote 47 While each digital currency unit is associated with a unique identifier like banknotes, each unit is interchangeable with one another, and, therefore, fungible.Footnote 48 However, the extent to which digital currencies are fungible in the sense of being interchangeable with central bank currency at par remains open to question and is discussed subsequently in the article.Footnote 49
Tokenised forms of payment may include central bank digital currencies (CBDCs), stablecoins, and tokenised bank liabilities.Footnote 50 Stablecoins, as the subject of this article, merit further analysis as their adoption as a means of payment has risen in recent years, and is expected to grow further with increased public confidence that is likely to follow the enactment of legal and regulatory regimes that enable their use.Footnote 51 In the wake of the volatility of earlier digital assets like Bitcoin and Ether, stablecoins emerged as a new class of digital assets that are designed to maintain stability.Footnote 52 The market capitalisation of stablecoins has risen from US$125 billion around 2023 to US$255 billion in 2025.Footnote 53 The value proposition of stablecoins is its role as ‘decentralised money’,Footnote 54 which is premised on its reliance on ‘trustless’ decentralised consensus protocols for transfers, rather than on centralised intermediaries such as banks.Footnote 55 This is touted to reduce the costs and duration of payment transactions, particularly for cross-border payments, as well as enhance payment access and transparency.Footnote 56 They can also be subject to programmable protocols using smart contracts, which reduces transaction costs.Footnote 57
Stablecoins may be categorised into asset-linked stablecoins and algorithm-based stablecoins. Asset-linked stablecoins reference another asset or basket of assets like fiat currency, the value of which determines the value of the stablecoins.Footnote 58 Algorithm-based stablecoins purport to stabilise their value through protocols that provide for variations in the stablecoin circulation based on fluctuations in demand.Footnote 59 SCS are of particular note as they are designed to peg their value to a single fiat currency.Footnote 60 This reinforces their use as a means of payment and settlement beyond their current predominant function as an entry to and exit from the cryptoasset ecosystem.Footnote 61 SCS have been the subject of increased regulatory attention in recent years. The EU Markets in Crypto-Assets Regulation (MICA) was passed in 2023.Footnote 62 Most recently, the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) was signed into law in the US in July 2025.Footnote 63
SCS as Money: Why Does it Matter?
There are key differences in the legal consequences that follow depending on whether SCS are characterised in law as money. If SCS are not characterised as money but as commodities, agreements that provide for the use of SCS as means of payment would be potentially treated as effectively barter arrangements,Footnote 64 which would arguably be an artificial construction of the parties’ agreement. On this basis, the failure to pay SCS as agreed would require the payee to pursue an unliquidated claim for damages, for which the payee must prove and mitigate its loss, which cannot be too remote.Footnote 65 In contrast, if SCS are characterised as money, the failure to pay SCS intended as a means of payment would entitle the payee to a claim in debt, which would be easier and quicker to enforce by summary judgment.Footnote 66 The term ‘debt’ is given a restricted meaning under the common law as a ‘definite sum of money’ which is promised to be paid as a primary obligation.Footnote 67 A debt claim is liquidated as it is fixed and does not require assessment by the court.Footnote 68 In principle, the characterisation of SCS owed as money debt would permit an award of a monetary remedy denominated in SCS in the same way as the payee may be awarded a remedy in foreign currency on the basis that this would best reflect the payee’s loss.Footnote 69
A further consequence of characterising SCS as money is that creditors which are owed SCS would not be subject to greater credit and insolvency risks as compared to creditors which are owed other forms of money.Footnote 70 For example, it would permit creditors with mutual debts denominated in SCS to rely on legal set-off to mitigate their credit risk.Footnote 71 It would also facilitate the assignment of SCS-denominated debt to other creditors to minimise their risk exposure.Footnote 72 Further, it would permit creditors to petition for a bankruptcy order on the basis of the debt owed.Footnote 73
Legal and Regulatory Framework of SCS as a Means of Payment
Despite earlier regulatory concerns of stablecoins as a potential substitute for public money,Footnote 74 SCS have gained significant regulatory traction internationally. The UK and Singapore have introduced their respective proposed regulatory frameworks for SCS. The proposed frameworks broadly seek to facilitate the use of SCS as a means of payment in respect of three key functions: (a) the issuance, stabilisation, and redemption of SCS; (b) the custody of SCS; and (c) the transfer of SCS.Footnote 75 The proposed SCS-specific legislative provisions in the UK were published by HM Treasury in April 2025, while Singapore still awaits SCS-specific legislation after the Monetary Authority of Singapore (MAS) finalised its SCS regulatory framework in 2023. Singapore, however, was one of the earliest jurisdictions to establish an overarching legislative framework governing the issuance and regulation of digital currencies in its enactment of the Payment Services Act 2019 (PSA 2019) in 2019. In this context, the following discussion will focus on the key legislative and regulatory developments on SCS in the UK, but with references to Singapore’s position as appropriate.
In the UK, the proposed Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (Cryptoassets Order), which amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, has introduced a new framework for ‘qualifying cryptoassets’ and ‘qualifying stablecoins’. A ‘qualifying stablecoin’ is defined as ‘a qualifying cryptoasset that – (a) references a fiat currency; and (b) seeks or purports to maintain a stable value in relation to that referenced fiat currency’ by holding fiat currency (and other assets).Footnote 76 Tokenised deposits are excluded.Footnote 77 A ‘qualifying cryptoasset’ means a cryptoasset that is ‘fungible’ and ‘confers transferable rights’, but excludes, inter alia, e-money and CBDCs.Footnote 78 In this regard, the Financial Services and Markets Act 2000 defines a ‘cryptoasset’ as ‘any cryptographically secured digital representation of value or contractual rights’ that can be stored or transferred electronically using technology like distributed ledger technology.Footnote 79 Further, the Financial Services and Markets Act 2023 has extended the scope of the Banking Act 2009 and Financial Services (Banking Reform) Act 2013 to ‘digital settlement assets’ (DSAs).Footnote 80 DSAs refer to ‘a digital representation of value or rights’, which ‘can be used for the settlement of payment obligations’.Footnote 81 This amendment is intended to subject systemic DSA service providers and payment systems to the supervision of the Bank of England (BOE).Footnote 82
Issuance, Stabilisation, and Redemption
The proposed Cryptoassets Order permits qualifying stablecoins to be issued by non-bank entities authorised by the Financial Conduct Authority (FCA) as a new regulated activity.Footnote 83 Issuance would include the offer, redemption, and stabilisation of the value of the qualifying stablecoin.Footnote 84 To stabilise their value, qualifying stablecoins must be backed by ‘sufficiently liquid’ reserve assets valued at 100% of the stablecoins in circulation.Footnote 85 As a default requirement, such reserve assets are restricted to short-term deposits and government debt instruments, but may include a broader range of ‘expanded backing assets’ such as longer-term government debt instruments, subject to notification.Footnote 86 At least 5% of reserve assets must comprise on-demand bank deposits.Footnote 87 To ensure that qualifying stablecoins are not treated as deposits or investments, interest from the reserve assets cannot be passed on to holders.Footnote 88
To prevent misuse, the reserve assets must be held in segregated accounts by an unconnected third-party on a statutory trust for the holders,Footnote 89 and subject to daily reconciliation.Footnote 90 As a key requirement, holders must have a contractual right to redeem the stablecoins for the referenced fiat currency at par value from the issuer by the end of the following business day.Footnote 91 Information about the reserve assets and redemption process must also be adequately disclosed to holders and potential holders online.Footnote 92 Separately, the BOE has proposed a stricter framework for sterling-denominated stablecoins deemed to be systemic, which fall under its remit.Footnote 93 By default, at least 40% of reserve assets for such SCS must be held as central bank deposits that may be used for redemption claims, with the remaining 60% held in short-term government debt securities.Footnote 94 Therefore, systemic stablecoin issuers would be required to hold a deposit account at the BOE for this purpose.Footnote 95
The proposed Singapore regulatory framework broadly tracks the key features of the UK framework discussed above,Footnote 96 but its scope is narrower. According to the MAS, only issuers whose SCS are pegged to the Singapore Dollar or Group of Ten currencies in circulation, and which exceeds S$5 million in value would be subject to the additional regulatory requirements with respect to stabilisation and redemption. The limitation of the regulatory scope to these reference currencies is premised on the ‘availability of high-quality liquid assets’ denominated in the currencies for the purpose of the reserve backing requirements.Footnote 97 SCS which fall under this category would be given the regulatory classification of ‘MAS-regulated SCS’ to promote public confidence in their stability in value.Footnote 98
Custody
In Singapore, the amendments to the Payment Services Regulations 2019 with respect to the custody of digital assets came into force in October 2024. Pursuant to the amendments, payment service providers must deposit holders’ digital assets in a trust account maintained with a safeguarding person or held by itself on trust.Footnote 99 This safeguarding requirement is reinforced by requirements to conduct daily reconciliation of the holders’ assets, and maintain records of customer transactions, as well as risk management and operational safeguards.Footnote 100
Likewise, the FCA has proposed the safeguarding of digital assets to protect holders’ ownership rights, which are modelled after its Client Assets Sourcebook (CASS) requirements.Footnote 101 Under the proposed Cryptoassets Order, safeguarding refers to the exercise of control of the digital asset by the authorised custodian on behalf of the holder, which enables the custodian to transfer the benefit of the digital asset to another.Footnote 102 ‘Control’ means holding or storing the means of access to the digital asset, such as the private key.Footnote 103 Custodians would also be required to hold digital assets in either individual or omnibus wallets on a segregated basis on trust for the holders.Footnote 104 To mitigate difficulties in verifying holders’ ownership rights, this is supplemented by the requirement to maintain internal records that identify the respective claims to the cryptoassets of each holder,Footnote 105 along with daily reconciliation requirements.Footnote 106
Transfer
To facilitate transfers of SCS for payment and settlement in Singapore, the PSA 2019 is expected to be amended to empower the MAS to supervise stablecoin arrangements as payment systems.Footnote 107 Systemic stablecoin arrangements will be designated accordingly as payment systems, which would be subject to regulation under the PSA 2019 and Payment and Settlement Systems (Finality and Netting) Act 2002.Footnote 108 The MAS has also proposed that transfers of MAS-regulated SCS must be completed within three business days in line with the requirement for domestic money transfers. However, it noted that such transfers may not entirely be within the control of the intermediary on account of the transfers being performed on the distributed ledger.Footnote 109
Likewise, the BOE has noted the challenges of attributing legal accountability for the governance of the distributed ledger which is not subject to the control of a distinct entity. It has, therefore, expressed its reservations on the use of public permissionless blockchains, while remaining open to their use, noting that most transfers of digital assets are performed by such blockchains.Footnote 110 In this regard, the governance of the distributed ledger may implicate the settlement of transactions, which is considered further later in this article. The FCA, for its part, has stated that qualifying stablecoins may be issued using all types of distributed ledgers, including public, private, permissionless, or permissioned blockchains.Footnote 111 Importantly, however, it has emphasised that the redemption right against the issuer and the other contractual rights of the holder must be ‘effectively transferred in law’ from one holder to another.Footnote 112 The transferability of digital assets is considered further below.
Summary and Analysis
The broad objective of the proposed SCS regulatory frameworks in the UK and Singapore is to strengthen public confidence in the use of SCS as a medium of exchange that is complementary to, rather than a substitute for, bank money. It does so on the basis of the ‘trust’ model rather than the ‘deposit’ model that sustains bank money.Footnote 113 The proposed Cryptoassets Order expressly provides that sums which are exchanged for qualifying stablecoins are not deposits.Footnote 114 In the absence of deposit insurance, the imposition of safeguarding requirements for reserve assets are intended to serve as a functional substitute for bank-like regulation. They are intended to ensure that issuers hold enough reserve assets to maintain the one-to-one peg value of the SCS, which are to be held on trust and ring-fenced from the claims of its creditors to ensure that issuers can meet the redemption claims of holders.Footnote 115 The stabilisation of the one-to-one peg would, in principle, allow SCS to be a store of value and used to discharge debts at nominal rates.
In this regard, the redemption requirements are integral in ensuring the credibility of the one-to-one peg, and consequently, the interchangeability between SCS and fiat currency at par value. Currently, redemption rights at par value are limited and not guaranteed for all holders.Footnote 116 Many SCS issuers allow only institutional holders to redeem SCS directly, while non-institutional holders have to sell their SCS on the secondary market at the risk of loss.Footnote 117 This limits the function of SCS as a store of value. A standardised redemption claim for all SCS holders for the underlying monetary value, as proposed under the regulatory frameworks, reinforces public trust in the interchangeability of SCS with the underlying monetary value at par. In some ways, the holder’s redemption claim against the issuer parallels the convertibility of bank deposits for cash. One difference is that an SCS holder would have a proprietary claim in respect of the reserve assets held by the custodian on trust on its behalf,Footnote 118 rather than an unsecured claim of a bank depositor in the event of insolvency.Footnote 119 Insolvency risk is further mitigated by bank-like prudential requirements imposed on the intermediary.Footnote 120 The MAS, for example, has proposed that the issuer maintains base capital of S$1 million or 50% of annual operating expenses (whichever is higher), and sufficient liquid assets for recovery or an orderly wind-down.Footnote 121
Even so, the right to redeem SCS for fiat currency would be worth little in the event of a maturity mismatch between the issuer’s reserve assets and its short-term redemption liabilities. This may create a stablecoin run from a loss of confidence.Footnote 122 The credit, liquidity, and market risks of the reserve assets would be borne indirectly by the SCS holders.Footnote 123 For this reason, the BOE had originally proposed that systemic SCS should be fully backed by central bank money in the form of risk-free deposits held at the BOE.Footnote 124 Following pushback from market players, it backtracked to its current proposed default requirement of 40% of reserve assets held as central bank deposits.Footnote 125 A careful balance needs to be struck between mitigating the holder’s credit risk in holding SCS, and facilitating the viability of stablecoin business models along with permitting controlled innovation in a nascent industry. In this connection, reference may be made to the relevant safeguarding requirements of funds received by e-money issuers in the form of investments in ‘secure, liquid, low-risk assets’, as prescribed pursuant to the Electronic Money Regulations 2011, as appropriate.Footnote 126 Further measures to mitigate this risk may include providing a bank-like liquidity lifeline to SCS issuers by the central bank if the risk is systemic.Footnote 127
In line with the objective to facilitate SCS as a medium of exchange, it is notable that the proposed Singapore framework has singled out only stablecoins that reference a single fiat currencyFootnote 128 on the basis that they present a ‘stronger use case for payment and settlement.’Footnote 129 However, the UK position is not entirely clear in this regard. While the definition of ‘qualifying stablecoins’ refers to stablecoins that reference ‘a fiat currency’,Footnote 130 HM Treasury has suggested that qualifying stablecoins may include ‘a stablecoin that references one or more fiat currencies’.Footnote 131 It is difficult to see, however, how multi-currency pegged stablecoins would accord with the stated objective of facilitating the use of fiat-referenced stablecoins as a means of payment given the difficulty of determining the nominal value of the referenced assets.Footnote 132 Foreign currency fluctuations make it challenging for such stablecoins to be used to discharge debts at nominal rates, as an important characteristic of money.Footnote 133
However, it is at least clear that algorithm-based stablecoins and asset-linked stablecoins other than fiat-referenced currencies would fall outside the proposed Singapore and UK frameworks. Such stablecoins would fall under the UK framework for ‘unbacked cryptoassets’ that may be proposed in due course.Footnote 134 Indeed, stablecoins pegged to assets other than a single fiat currency cannot be considered to be a digital representation of monetary value that can function as a means of payment on the basis of the nominal value of the instrument. Instead, they are investment-like digital currencies that function more like financial instruments and should, therefore, be regulated as such.Footnote 135 For non-fiat referenced stablecoins, their value would be affected by the volatility of the market value of the referenced assets;Footnote 136 for algorithm-based stablecoins, they are generally under-collateralised and rely instead on incentives for holders to use deviations from the peg as arbitrage opportunities.Footnote 137 The higher volatility of such stablecoins undermines their use as a stable medium of exchange and store of value.
The proposed regulatory frameworks, as a whole, would subject existing SCS with different risk profiles and governance structures to uniform baseline standards, particularly with respect to their stabilisation mechanisms and management of reserve assets. This mitigates the problem of informational asymmetries, which reduces the transaction costs of SCS-denominated payments.Footnote 138 This is arguably preferable to ‘free market’ competition amongst different SCS under the so-called ‘Hayakian model’ that ostensibly promotes payments innovation in the public interest.Footnote 139 The proposed frameworks would also provide the basis for the further development of SCS as a credible store of value and medium of exchange that co-exists with other forms of payments within the broader payment ecosystem.
SCS as Money: A Substance over Form Approach
In light of the proposed regulatory frameworks in the UK and Singapore above, it is argued that SCS should be characterised as money under the common law in order to respond to, and facilitate the use of, such digital currencies as a means of payment which is likely to increase as a result of these regulatory developments. It is apparent that none of the proposed frameworks purport to confer legal tender status on SCS, which is reserved for central bank money. However, they are intended to facilitate the use of SCS as a means of payment within the broader public. As the BOE explained, ‘[t]he Bank’s vision for the future of the UK’s payments landscape is one of a “multi-money” mixed ecosystem. It is where different forms of money (including stablecoins) coexist to maximise benefits for households and businesses.’ Under this ecosystem, money would include ‘traditional commercial bank money, e-money, tokenised deposits, stablecoins as well as other new forms of digital money that may emerge over time.’Footnote 140 The proposed requirements for systemic payment stablecoins, according to the BOE, are intended to ensure public confidence in their use as ‘a form of private money.’Footnote 141 Similarly, as the FCA stated, ‘[q]ualifying stablecoins should operate as money-like instruments’. In this regard, for the purpose of the FCA’s issuance and safeguarding requirements, the proposed Cryptoassets Order specifies that the term ‘money’ under the Financial Services and Markets Act 2000 would include qualifying cryptoassets, as well as the sums received or held as reserve assets.Footnote 142
Likewise, the MAS has determined that stablecoins have the potential to perform ‘the role of a credible digital medium of exchange’, provided that they are appropriately regulated to ensure stability in value.Footnote 143 Under the PSA 2019, ‘digital payment tokens’ – a category which would include SCSFootnote 144 – are defined as a digital representation of value that, inter alia, ‘is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt’.Footnote 145 On this basis, digital assets are contemplated to serve the equivalent functions of money.Footnote 146
In light of this, under the substance over form approach, as discussed below, it is argued that payment-like digital currencies – particularly SCS that fall under the proposed regulatory frameworks in the UK and Singapore – may be characterised as money. This characterisation accords with their purpose of discharging a debt or payment obligation at their nominal value, as opposed to investment or speculation. This characterisation would align with the overarching regulatory intent for the use of such instruments as a means of payment ‘without reference to the character or credit of the person who offers it’, rather than securities or commodities in barter arrangements.Footnote 147
Substance over Form
As discussed above, the state-centric legal conception of money – which is largely premised on money as an expression of sovereign authority and which remains highly influential to this dayFootnote 148 – inadequately accounts for the growth and circulation of both current and future forms of private money, such as bank money, e-money, and stablecoins.Footnote 149 As an alternative, a substance over form and technologically-neutral approach to the characterisation of money is preferable in a ‘multi-money’ mixed ecosystem.Footnote 150 Money – under the substance over form approach – may be characterised as the physical or digital representation of value that serves as a means of payment with reference to the nominal value of the instrument, the use of which is facilitated or supported by the state’s legal and regulatory framework even if it is not issued by the state. On the basis of this approach, as explained previously, whether an instrument is capable of serving as a means of payment depends on whether it can function as a means of the transfer of monetary value between parties, regardless of its underlying technology. This function is enabled if the instrument issued constitutes a valid transferable claim of the underlying monetary value for the discharge of payment obligations that is recognised and enforceable by law.
The reason why we accept money such as banknotes and commercial bank money for the discharge of legal obligations is because, at its core, money embodies a transferable claim recognised and enforceable by law. This recalls the less cited but no less important ‘credit theory’ of money. According to the theory, a sale and purchase operates by way of ‘the exchange of a commodity for a credit’.Footnote 151 On the premise that ‘[c]redit and credit alone is money’, monetary value lies in the rights of the creditor to receive payment.Footnote 152 Monetary transfers, thus, operate by way of an exchange of claims against the issuer within a network of creditor-debtor relationships.Footnote 153 Banknotes, as promissory notes,Footnote 154 transfer monetary value in the form of a claim against the central bank to exchange one note for a lower denomination.Footnote 155 Bank money represents a claim against the bank to convert the deposit into cash on demand, and the bank’s promise to transfer such claims to other parties as instructed by the payer.Footnote 156 Transfers of monetary value using bank money operate by way of the substitution of a claim of the payee against the payee’s bank for the claim of the payer against the payer’s bank.Footnote 157 Likewise, as highlighted by the FCA, under the proposed regulatory framework, the holder’s right to redeem the stablecoins for the referenced fiat currency at par value from the issuer must be transferable in law to the next holder.Footnote 158 This enables SCS to function as a liquid circulating asset within the community by representing a transferable claim of the underlying monetary value against the issuer.
Rather than being premised on the state’s role as the issuer of money, this broader approach acknowledges the state’s supportive role in providing the appropriate legal and regulatory framework in order for the transferable claim to be enforced by law.Footnote 159 This role is exercised under the proposed regulatory frameworks above by means such as the issuing of licenses to private entities that permit them to issue private money, and ensuring that such money is exchangeable with central bank money at par.Footnote 160 It is this supportive role in the form of the legal and regulatory treatment of the instrument that facilitates and enables the social recognition of the instrument as money, and underpins social trust in the value of both public and private money as a medium of exchange. Contrary to what is commonly assumed, money, as a social construct, derives its worth not from any intrinsic value, but its extrinsic value.Footnote 161 That is, its worth lies in its face value that people are willing to accept as the basis for the discharge of obligations because they trust that others would do so likewise.Footnote 162 This allows money to function as a circulating medium based on ‘custom or usage prevailing generally’.Footnote 163 By analogising USDT with money, the Singapore High Court in ByBit Fintech Ltd v Ho Kai Xin stated that: ‘It is only because people generally accept the exchange value of shells or beads or differently printed paper notes that they become currency. Money is accepted by virtue of a collective act of mutual faith.’Footnote 164 On this basis, money may be seen as a social construct, as much as it is a legal construct.
The substance over form approach, it is contended, finds support in the pragmatism of the common law in being responsive to commercial developments and changing market practices. The monetary status of Bank of England notes, for example, was recognised in 1758 in one of the earliest cases on how money is viewed in law. At the time, as the BOE was not granted legal monopoly in the issue of currency when it was established in 1694, BOE notes circulated alongside private banknotes as de facto media of exchange.Footnote 165 In Miller v Race, it was accepted that in the course of trade, such notes were ‘paid by and received of the holder or possessor of them, as cash’.Footnote 166 On this basis, Lord Mansfield stated that BOE notes do not resemble and should not be compared to ‘goods, or to securities, or documents for debts’, but:
are treated as money, as cash, in the ordinary course and transaction of business, by the general consent of mankind; which gives them the credit and currency of money, to all intents and purposes. They are as much money, as guineas themselves are; or any other current coin, that is used in common payments, as money or cash.Footnote 167
Characterisation of Digital Currencies
On the basis of the substance over form approach, it is argued that payment-like digital currencies must be distinguished from investment-like digital assets. In this regard, digital assets may be broadly categorised into exchange tokens, security tokens, and utility tokens.Footnote 168 Security tokens would patently not constitute money as they do not serve to transfer monetary value, but function as a digital representation of the holder’s rights to investments, like shares or debt instruments. Likewise, utility tokens, which grant holders access to a product or service, would not constitute money.Footnote 169 Exchange tokens, in contrast, are digital currencies that are not issued or backed by the central bank, and are designed to function as a medium of exchange.Footnote 170
While exchange tokens, as a category in itself, may, in theory, function as a means of payment provided that the transacting parties agree, certain attributes lend the quality of ‘money-ness’Footnote 171 to certain exchange tokens more than others. For example, exchange tokens like Bitcoin were originally conceived and has been argued to be a form of private money.Footnote 172 However, such exchange tokens have no nominal value, are not backed by any reserve assets, and are not pegged to any fiat currency. Their resulting volatility makes them much less fit for purpose as a means of payment. In contrast, the relative stability of stablecoins – specifically SCS – make them stronger candidates for use as a means of payment, which gives them a stronger claim to the characterisation as money.
Even so, as discussed further below, not all stablecoins may necessarily be able to perform this function either, which would depend on their respective functional characteristics, such as the design of the pegging mechanism. It suffices, however, for present purposes to state that a legal distinction needs to be made between digital currencies that are able to function effectively as a means of payment, and other investment-like digital currencies that function more like a means of investment or speculation like financial instruments. This would depend on their respective attributes. In the final analysis, whether digital currencies should be characterised as money is a fact-specific and context-driven inquiry,Footnote 173 and ultimately depends on their functional characteristics and the purpose of their use on a case-by-case basis.Footnote 174
Analogy with E-Money
Under the proposed regulatory frameworks, e-money and SCS share certain similarities insofar as they are both issued on the receipt of fiat currency by an issuer, and are a digital representation of the underlying monetary value on a one-to-one basis.Footnote 175 Unlike bank money, this monetary value does not constitute deposits.Footnote 176 Instead, it is derived from, and not independent of, the value of the referenced fiat currency, and represents a transferable claim on the issuer in respect of the monetary value that can be redeemed at par value.Footnote 177 Specifically, qualifying stablecoins (and other qualifying cryptoassets) are defined under the proposed Cryptoassets Order as cryptoassets which are ‘transferable’, such as where they confer ‘transferable rights’.Footnote 178 Both e-money and SCS issuers are (or would be) required to fully back their liabilities against which the monetary value is maintained.Footnote 179 On this basis, it may be argued that transfers in e-money and SCS both involve the transfer of property representing the bundle of rights enforceable against the issuer between the payer and payee by way of the destruction of the payer’s claim on the issuer and the creation of the payee’s claim on the issuer.Footnote 180
It may be argued, however, that SCS is different from e-money because the latter is a ‘facilitator’ of bank money as it is issued and redeemed in exchange for bank money.Footnote 181 However, under the proposed regulatory frameworks above, it is similarly contemplated that SCS would be exchanged for bank money between the holder’s digital wallet and bank account as part of the on and off-ramping processes.Footnote 182 To the extent that SCS may be purchased and redeemed in bank money as contemplated, it may be argued that SCS transactions do not entirely remove the bank’s intermediation role in payment transactions.Footnote 183 In this connection, e-money has been argued to be a medium of exchange in and of itself: it can be used by holders to make payments on a peer-to-peer basis ad infinitum until the payee at the end of the payment chain invokes its redemption right and exchanges it for bank money.Footnote 184 The same may be said for SCS. In this sense, SCS may be said to perform a similar role as e-money by functioning as permanent ‘electronic surrogates for coins and banknotes’.Footnote 185
Nevertheless, the analogy with e-money is not a perfect one. A key difference is that unlike e-money, SCS may be transferred on the blockchain on a peer-to-peer basis without the issuer’s intermediation.Footnote 186 Transfers of SCS are confirmed if they are recorded on the blockchain,Footnote 187 and can be considered as a form of ‘blockchain-based’ type of e-money.Footnote 188 For this reason, SCS are not considered to be e-money in the strict sense and are likely to be subject to different regulatory treatment in the UK and Singapore under the proposed frameworks.Footnote 189 That said, on a substance over form approach, that SCS rely on a decentralised blockchain mechanism for transfers should not obscure the fact that monetary value may be transferred like bank and e-money transfers as a matter of economic substance.Footnote 190
In this regard, while the UK Law Commission stopped short of recognising digital currencies as money – an issue which fell outside the ambit of its report – it stated that such recognition was not necessary in order for ownership to be transferred in the same way as money under the common law.Footnote 191 According to the Law Commission, as digital currencies have ‘some inherent bearer-like qualities’, they may be treated as negotiable if it is ‘the clear intention and developed custom of users’ on the basis that they ‘are designed to enable peer-to-peer transfers of value’.Footnote 192 This characteristic of negotiability enables SCS to function as ‘digital bearer instruments’ in representing a transferable claim of the underlying monetary value against the issuer.Footnote 193 On this basis, the defence of good faith purchase for value without notice under the common law – that applies to transfers of money and negotiable instrumentsFootnote 194 – may be argued to apply by analogy to transfers of payment-like digital currencies which replicate the functional characteristics of money.Footnote 195 Notwithstanding the nemo dat quod non habet rule, an innocent transferee of SCS should, therefore, be able to obtain good title to the SCS that it receives in good faith for valuable consideration, even if the transferor might not have had good title (as in the case where it is stolen).Footnote 196 This would facilitate and accord with the use of SCS as a circulating medium of exchange as contemplated under the proposed regulatory frameworks.Footnote 197
Unit of Account of SCS
One may object to the characterisation of SCS as money on the basis that they are not denominated in the legally-prescribed accounting unit, but in ‘virtual accounting units’.Footnote 198 These are the ‘native notional quantity unit[s]’ that are a function of the relevant blockchain.Footnote 199 The function of money as a unit of account serves as the ‘universal denominator of value’ for all obligations that may be exchanged.Footnote 200 On this premise, the unit of account must be prescribed by the law of the state, as one of the last remaining strictures of the ‘state theory’ of money.Footnote 201 It may be argued that a unit of account that is not prescribed by the law of the state undermines the function of money in providing a ‘common financial denominator’ for all transactions in the economy.Footnote 202
SCS that fall under the proposed regulatory frameworks, however, are arguably structurally different from self-denominated cryptocurrencies such as Bitcoin. SCS are ‘non-native’ or ‘exogenous’ as they represent a claim on the issuer in respect of real-world units of fiat currency (as the referenced asset) that exist outside the blockchain.Footnote 203 The regulatory requirements that provide for the stabilisation of the one-to-one peg with the referenced currency, together with the holder’s redemption claim, preserve the existing unit of account role of money.Footnote 204 On this basis, the unit of account of the SCS represents, and is therefore the functional equivalent of, the unit of account of the referenced currency. For example, XSGD, which is a stablecoin that is one-to-one pegged with the Singapore Dollar, would have the same unit of account as the Singapore Dollar.Footnote 205 On an alternative view, it may be argued that the unit of account of SCS is analogous with a foreign currency unit of account. On the basis that parties may agree to value the debt in terms of a foreign unit of account, SCS is arguably money inasmuch as foreign currency is recognised as money.Footnote 206 On either view, the unit of account function of money is not undermined by the characterisation of SCS as money.
Challenges and Limitations
While this article has discussed the arguments in favour of characterising SCS as money under the proposed substance over form approach in light of the proposed frameworks in the UK and Singapore, it is necessary to consider some of the potential challenges and limitations with respect to such a characterisation. The following discussion briefly considers some of these challenges, which are intended as a starting point for a fuller analysis in a separate discussion.
Settlement
First, unlike e-money or bank money, SCS payments are disintermediated and settled on the blockchain, which poses risks to settlement finality.Footnote 207 Settlement finality refers to the ‘irrevocable and unconditional transfer of an asset’ for the full discharge of obligations between the parties.Footnote 208 Settlement of bank money is ‘deterministic’ as they are settled through bank intermediation, and ultimately settled in central bank money as the ultimate risk-free settlement asset.Footnote 209 In contrast, peer-to-peer payments on the blockchain are based on the functional equivalent of settlement performed according to the rules of the relevant consensus protocols.Footnote 210
Currently, most transfers of stablecoins are performed on public permissionless blockchains such as Ethereum, which is based on proof-of-stake consensus protocol.Footnote 211 Exceptionally, settlement risk may occur due to a ‘fork’ in the ledger that creates two separate ledgers, which creates legal uncertainty as to when or whether final settlement has occurred.Footnote 212 In this regard, as noted above, while the BOE noted the benefits of public permissionless blockchains, it considered that its decentralised operation and absence of a ‘central entity’ responsible for the governance of the blockchain create potential settlement risks.Footnote 213
As a regulatory objective, the uncertainty of operational finality should be mitigated by extending the existing legal frameworks that govern settlement finality in payment systems to provide for legal finality in blockchain transactions.Footnote 214 The time at which the transfer of the SCS on the blockchain is deemed to be irrevocable and unconditional should be clarified in the legal framework.Footnote 215 In principle, however, the possibility of settlement risk in itself should not be an impediment to the characterisation of SCS as money under the common law, which is instead premised on the parties’ agreement of the digital currency to be used for the performance of the monetary obligation.Footnote 216 As stated in Libyan Arab Foreign Bank v Bankers Trust Co: ‘in my view every obligation in monetary terms is to be fulfilled, either by the delivery of cash, or by some other operation which the creditor demands and which the debtor is either obliged to, or is content to, perform.’Footnote 217 It should, therefore, be open to the payer and payee to agree to the use of SCS to fulfil a monetary obligation, and the point in time at which the transfer of the SCS on the blockchain is to be irrevocable and unconditional.Footnote 218
Singleness
A further issue arising from the disintermediated nature of SCS is that it potentially undermines the ‘singleness of money’. This refers to the key tenet of the monetary system in which money issued by different entities is accepted with ‘no questions asked’.Footnote 219 This ‘information-insensitivity’ of money is premised on the basis that all forms of money hold the same underlying monetary value because they are ultimately settled at par in central bank money.Footnote 220 If SCS payment transactions are not ultimately settled in central bank money, the value of different SCS may depend on the creditworthiness of one issuer relative to another.Footnote 221 As some have argued, this risks different SCS trading at different exchange rates, resembling private banknotes during the 19th century Free Banking era in the US.Footnote 222
Singleness also requires the SCS to hold its peg and not trade at a different exchange rate in the secondary market.Footnote 223 The stability of the peg is contingent on the risk profile of the issuer’s reserve assets and the market’s belief that the issuer can redeem them at par value as promised.Footnote 224 In March 2023, for example, USDC lost its peg to the US Dollar by up to 13% after its issuer had announced that its reserve assets were held at Silicon Valley Bank, which was insolvent following a bank run.Footnote 225 While the stringent safeguarding requirements under the proposed frameworks go some way towards mitigating this risk, SCS may still be vulnerable to de-pegging due to other risk factors, including market stress, changes in demand and supply, and regulatory uncertainty.Footnote 226
Arguably, the ‘singleness of money’ relates to the broader regulatory objective of maintaining monetary stability rather than the characterisation of SCS as money under the common law. The ‘singleness of money’ may be supported, in part, by facilitating interoperability between existing payments infrastructure and SCS arrangements, and ensuring convertibility between SCS and bank money between the holder’s digital wallet and bank account, and ultimately into central bank money.Footnote 227 Where the characterisation of SCS as money under the common law is concerned, however, under the substance over form approach, the touchstone of ‘money-ness’ is whether such instruments are capable of facilitating the transfer of monetary value without reference to the creditworthiness of the payer for the discharge of debts.Footnote 228
Protections
Payments using SCS also carry some amount of risk due to the absence of protections for holders. According to HM Treasury, SCS would remain ‘unregulated for payments’ pending further adoption by the public of SCS over time, even though they may still be used for payments.Footnote 229 Therefore, payments using SCS would not constitute ‘payment transactions’ for the purpose of the protections under the UK Payment Services Regulations 2017.Footnote 230 Likewise, payments using digital currencies do not fall under the MAS E-Payments User Protection Guidelines.Footnote 231 This potentially undermines the use of SCS as a means of payment in the absence of safeguards against incorrect or fraudulent transfers of SCS stored in wallets held with intermediaries. Under the UK Payment Services Regulations 2017, for example, the payment service provider is required to reimburse the payer the amount of the unauthorised transaction, subject to the relevant requirements.Footnote 232 However, under the proposed UK framework for cryptoassets, liability for the loss of digital assets held by the authorised custodian would be determined by the relevant contractual terms.Footnote 233
At the same time, the payments regulatory frameworks currently in force are premised on the responsibility of payment intermediaries to safeguard users against unauthorised payments, and are not readily applicable to payments using distributed ledger technology on a decentralised and disintermediated basis.Footnote 234 The immutability of the blockchain, for example, would make it impossible to reverse unauthorised transactions under the UK Payment Services Regulations 2017.Footnote 235 The gap in the governance of SCS payment chains may undermine public confidence in SCS as a means of payment. Nevertheless, as argued above, to the extent that there is broad acceptance amongst the public for the use of SCS as a means of payment as a consequence of the proposed regulatory frameworks above, this should not militate against the characterisation of SCS as money under the common law in accordance with the substance over form approach.
Conclusion
As digital currencies enter mainstream finance as a result of the significant technological, commercial, and regulatory changes that have occurred in recent years, the common law should adapt to the increasing use of tokenised money, particularly SCS, as a means of payment. In this respect, a substance over form approach to the characterisation of money is preferable to the state-centric legal conception of money that still prevails. Under a substance over form approach, the touchstone of the monetary status of an instrument is whether the instrument may be considered to be the physical or digital representation of value that serves as a means of payment on the basis of its nominal value. This would depend on whether it enables monetary value to be transferred between parties without reference to the creditworthiness of the transferor.
In this regard, the proposed regulatory frameworks in Singapore and the UK, subject to their finalisation and implementation, provide the basis for SCS to constitute a transferable claim of the underlying monetary value of the pegged fiat currency that is enforceable by law. Under the proposed frameworks, SCS are, for all intents and purposes, the functional equivalent of the pegged currency. As a corollary to this substance over form approach, a legal distinction should be made between payment-like digital currencies (such as SCS), and investment-like digital currencies (such as other forms of asset-linked stablecoins) that function primarily as a means of investment and which should not be considered as money by any reasonable measure.
Nevertheless, there remain risks in the adoption of SCS. Such risks – which include uncertainty around settlement, de-pegging, and lack of protections for users – are attributed largely to the disintermediated nature of SCS and remain subject to further discussion. Given the potential trade-offs between the centralisation and decentralisation of payments, and between intermediated and disintermediated money, a role may perhaps be conceived for SCS that is, at best, complementary to, rather than a substitute for, bank money within a ‘multi-money’ payments ecosystem.Footnote 236 These challenges aside, it is hoped that this article has contributed to the ongoing debates surrounding the treatment of digital currencies as money.
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