Digital assets being studied to limit dangers and maximise advantage

KUALA LUMPUR – Bank Negara Malaysia (BNM) has sought to take a conservative yet logical approach to digital assets in view of the complexities and uncertainties associated in order to maximise the advantages while limiting the dangers.

It was announced recently in its Annual Report 2021, that BNM will continue to foster public-private partnerships and worldwide collaborative efforts in order to advance the principles of responsible innovation in the digital asset arena.

“Digital assets may be limited given their lack of reliability, but the underlying technology (e.g., distributed ledger technology or DLT) can be used for other applications, including the issuing of Central Bank Digital Currencies (CBDC),” it added.

The central bank indicated that the current domestic payment networks are extremely efficient, and that existing monetary and financial policy tools remain effective.

Despite this, BNM is working hard to increase its capacity to issue CBDC for future use in circumstances that could provide a better amount of benefits to Malaysia although there is no immediate need to do so.

“A three-phase proof-of-concept (POC) has been launched as part of a multi-year exploration on CBDC. The POC will investigate the potential for CBDC to address existing issues, with priority given to CBDC applications for wholesale payments,” it stated.

Therefore, the central bank has worked in conjunction with foreign partners in order to evaluate the possibility for CBDC to overcome the difficulties in cross-border payments.

Digital assets not legal tender in Malaysia

BNM warns that using digital assets as payment instruments has risks because of these limitations.

“In Malaysia, digital assets are not legal tender and are not regulated payment instruments by the bank. We have issued a number of warnings to the public about the dangers of investing in digital assets.

In spite of this, the bank recognises the potential benefits of stablecoins, especially for cross-border payments. We are now looking into how to regulate stablecoins in order to monitor and prevent risks,” it added.

BNM will be directed by international standard-setting agencies to guarantee proper regulation, monitoring, and control of stablecoin arrangements given the international components involved in cross-border payments.

For example, BNM said that the Securities Commission Malaysia (SC) also oversees digital asset exchanges (DAX) that trade digital assets, the issue of digital assets for crowdfund raising (through IEO), and the supply of digital asset custodial (DAC) services.

“We have entered into a coordination agreement with the SC to guarantee that digital asset activities conform with the regulations of both agencies,” it added to boost collaboration.

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