Malaysia Focuses On Project Central Bank Digital Currency (CBDC)

Countries across the globe have started recognizing the rapidly growing financial trend – digital payments and virtual currencies being considered as digital assets (also known as cryptocurrency). Regulations vary from country to country regarding this field. On one hand, some countries are embracing bitcoin and cryptocurrency so dearly, accepting it as a legal tender in their jurisdiction. Whereas, there are various other concerns about the volatility and risks it incurs. Southeast Asian countries mostly fall in the latter segment mentioned here. Malaysia is one such country in South East Asia that has set itself on the path to explore digital currency. The country is resolved to put up a project – Central Bank Digital Currency  (CBDC). Let’s see what the Bank Negara Malaysia (BNM) has to say about it.

Malaysia’s Stance With Respect To CBDC

The central bank of Malaysia, Bank Negara Malaysia (BNM) has decided to run a proof-of-concept (POC) project to compute the observations into merits and operations on the personalized virtual currency, that is, the central bank digital currency (CBDC).

The Bank for International Settlements (BIS) categorizes CBDC into two categories: general-purpose and wholesale. A wholesale CBDC is associated with ‘restricted-access digital token’ mostly this is prevalent in the case of financial institutions reserving deposits and securities. General-purpose of CBDC or retail CBDC is for the common people and it is similar to the concept of digital cash.

BNM despises the retail method of Mainland China’s launch of ‘Yuan’. Unlike China or Bahama’s ‘Sand Dollar’, Malaysia is not interested in directly launching CBDC through retail. Instead, it is running this pilot project to study the impact of such an entity and “initially focus on wholesale CBDC”. As per data from Fintech news, in the Fintech Fireside Asia session, Suhaimi Ali, the Director of Financial Development and Innovation at BNM said, “We acknowledge that the CBDC landscape is evolving very rapidly, particularly over the past year due to the rapidly evolving digital assets and payment space which have prompted central banks globally,”

BNM Director Suhaimi Ali Explains Fintech Regulation in Malaysia - Fintech  News Malaysia
BMN Director Suhaimi Ali explains all the regulations in Malaysia, Fintech News Malaysia

The official mentions that the project has a two-fold motive. Foremost, it wants to assess and be conscious of the merits and risks the CBDC brings along with itself in the system. Another reason being that the regulators want to study the applications and operations of CBDC in the market. In that event earlier mentioned, Suhaimi Ali later adds, “This will help determine the appropriate CBDC design, and then we will be able to assess whether it creates the potential value that we need in the longer term. Then we will be able to build our capabilities.”

According to an analytic report by Price Waterhouse Cooper (PWC) which states “In Asia, Malaysia is behind its neighbour in the CBDC arena, especially compared to nations such as Cambodia, Thailand, Mainland China, Hong Kong, and Singapore, which have emerged as being amongst the most mature CBDC projects to date”. In another analytic report released by the Bank for International Settlements (BIS) states that “in January 2021 found that about 60% of central banks are conducting experiments or PoC projects, up from 42% in 2019, while 14% are moving forward to development and pilot arrangements”.

Although several countries are already done with the CBDC experiment in their financial ecosystem, such as Singapore. Malaysia’s central bank has made it clear that it has no immediacy to rush the procedure. Hence they haven’t released any set calendar for this project. The respective institution of the country also said, “We will also actively monitor the trend of key indicators with direct impact to our mandates, which may provide useful data points for us to evaluate the merits of CBDC issuance. These include, among others, the level of physical cash usage in Malaysia, the extent to which privately-issued digital assets are used for payments in Malaysia, and the extent to which CBDC is being used to facilitate cross-border trade.”

Malaysia's Central Bank blazes own path in digital currencies
Malaysia’s Central Bank creates it own way in digital currency, http://Tech Wire Asia

Due to such a detailed assessment of this digital asset via conducting Malaysia’s POC project, the central bank has also declared its intentions to build an internal capacity and reduce the potential risk as much as possible through informed decisions on CBDC.