BNM to adopt prudent, pragmatic approach to digital assets

KUALA LUMPUR - Bank Negara Malaysia (BNM) has aimed to adopt a prudent yet pragmatic approach to digital assets in light of the complexities and uncertainties involved to ensure it can harness the benefits while mitigating the associated risks.

In its Annual Report 2021 released today, the central bank said that in view of the interlinkages and potential spillover effects, it will also continue to support public-private partnerships and international collaborative efforts to advance the principles of responsible innovation in the digital asset space.

"Although digital assets may have limitations, the underlying technology (example: distributed ledger technology or DLT) can be harnessed for other applications including the issuance of Central Bank Digital Currencies (CBDC),” it said.

The central bank noted that the domestic payment systems are highly efficient and existing monetary and financial policy tools continue to be effective.

While this reduces any pressing need to issue CBDC in the immediate term, BNM is actively scaling up the technical and policy capabilities to support its ability to issue CBDC for prospective use in cases that could offer a higher level of benefit for Malaysia.

"To this end, we have commenced a multi-year CBDC exploration through a proof-of-concept (POC) with three phases.

"The POC will explore the potential for CBDC to address existing challenges, with priority given to CBDC applications for wholesale payments,” it added.

For this, the central bank has collaborated with international partners on Project Dunbar to assess the potential of CBDC in addressing the frictions in cross-border payments.

Due to the various limitations, BNM said there are risks involved in the use of digital assets as payment instruments.

"Digital assets are not recognised as legal tender in Malaysia and are not payment instruments that are regulated by the bank. We have periodically issued cautionary statements to remind the public to exercise caution when dealing with digital assets.

"Notwithstanding this, the bank recognises the potential benefits of stablecoins, particularly for enhancing cross-border payments. Hence, we are exploring the appropriate regulatory approach to manage and mitigate risks associated with stablecoins,” it added.

Given the international dimensions involved in cross-border payments, BNM will be guided by the principles issued by international standard-setting bodies to ensure appropriate regulation, supervision and oversight of stablecoin arrangements.

BNM said that beyond payments, the Securities Commission Malaysia (SC) regulates digital asset activities involving the trading of digital assets via digital asset exchanges (DAX), issuance of digital assets for fundraising via Initial Exchange Offering (IEO) and the provision of digital asset custodian (DAC) services.

"To foster collaboration, we have entered into a coordinating arrangement with the SC to ensure digital asset activities comply with the regulations of both regulators,” it said. - BERNAMA