Bank Negara exploring potential of wholesale central bank digital currency
KUALA LUMPUR: Bank Negara Malaysia (BNM) is exploring the potential of wholesale Central Bank Digital Currency (CBDC) to facilitate payments and settlements between banks, both domestically and across borders.
At present BNM is not only mulling CBDC’s potential but also conducting preparatory work to understand its implications.
This was disclosed to the media during the Digital Payments Media Workshop today.
“The key reason for pursuing the initiatives is to generate greater payment efficiency gains, not just in the domestic space but also for cross-border transactions, and to advance greater financial inclusion for Malaysians. And why our focus is on wholesale is that we see opportunities to derive greater efficiency gains in the wholesale payment space,” BNM said.
However, BNM does not see retail CBDC as a priority for now.
“We believe that our domestic payment system is already well-established to facilitate domestic retail payments, and that’s why it is not a priority for the central bank at this time,” it said.
BNM said that it began exploratory work on CBDC in 2017, and the work is still ongoing until today.
The work that BNM is doing right now is focused on three areas – internal capacity building; doing the preparatory work in case it were to issue wholesale CBDC in the future; and better understanding some of the underlying technology.
“If we were to issue wholesale CBDC in the future, we would know what it takes and what policy implications we need to bear in mind,” the central bank said.
In 2024-2025, BNM will explore the potential of CBDC and Distributed Ledger Technology (DLT) to address existing pain points and achieve public policy objectives.
Complementing domestic exploratory work, BNM is also collaborating with other central banks through projects led by the BIS Innovation Hub.
BNM said that their work is part of a broader global efforts, as 94% of central banks are involved in CBDC-related exploration.
“At the same time, we also see regulators providing regulatory clarity on digital asset transactions,” it added.
From a regulatory standpoint, BNM views CBDC and tokenised deposits as providing the strongest proposition to facilitate payments.
This is based on, for example, CBDC being issued by the central bank.
“All the use of tokenised deposits where explorations are being done across various countries, even in Asia, where the value is subject to a claim by regulated banking institutions.
“This is in comparison to a crypto asset, where the value is subject to much more volatility and is also influenced by dynamics in terms of market supply and demand.
“So as a result, the general view is that, from a payments perspective, crypto assets may not be acceptable in the payments space,” it said.
However, BNM reiterated that it has no immediate plans to issue CBDC at the moment.
BNM views digital assets as not being legal tender and not a regulated payment instrument in Malaysia.
“(Digital assets) are not a regulated payment instrument – hence, they are not subject to BNM’s prudential and market conduct standards applicable to regulated payment instruments.
“Any stablecoin arrangement must comply with BNM’s requirements to ensure monetary and financial stability and financial integrity,” it said.
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