CBDC in Malaysia, a game-changer or big brother's tool?

SHAH ALAM – Akin to a new chapter in the book of money, the notion of a central bank digital currency (CBDC) has taken centre stage in Malaysia’s ever-evolving world of finance, with proponents touting its numerous advantages over traditional ringgit.

But would a virtual currency backed by a sovereign body ever be reality?

Perhaps, it will, however Dr Ahmed Razman of the Putra Business School contended that the introduction of a Malaysian CBDC would not be immediate as the current system has been focusing on transferring the ringgit's value into a digital platform.

“CBDC is when the central bank itself would create currency that is equivalent to the ringgit, making it backed by a sovereign body.

“We have seen this in China where it was tested in three different provinces. Most countries are now looking into CBDC for trading purposes or domestic usage,” said Razman, the school’s MBA programme director.

Razman emphasized the significance of grasping that the shift from physical ringgit to CBDC could introduce potential complexities, including the government's ability to monitor all transaction types and potentially wield greater control over matters.

“The government would be able to monitor all transactions in the economy and it will allow an easier time to allocate necessary funds to certain economic sectors as they could easily view which lacked liquidity.

“CBDC could potentially remove black markets and money laundering as it goes through the blockchain recording all information,” he said.

However, there was also the contention that this system may lead to government surveillance and intervention, akin to a 'Big Brother' scenario, where authorities monitor and potentially restrict transactions in response to citizen behaviour or legal infractions.

Then there was also the question on the possibility of Malaysia shifting away from reliance on the USD$ vis-à-vis the introduction of its own CBDC, which Razman commented could benefit the country by enhancing its stability.

“Malaysia is affected heavily by the US dollar and once we start moving towards a digital currency that is not subjected to US currency it would potentially stabilise,” he contended.

Nonetheless, it will be highly unlikely for CBCD to create a completely cashless society here in Malaysia due to challenges in rural areas as many residents lack access to essential applications and connections, despite a decreasing trend in cash usage.

“Currently there are perceptions or beliefs that we could lose money through e-wallets or devices with prominent scams happening causing many not to trust a digital system.

“However, seeing as fintech is now offering forms of lending and offering easy buy now and pay later schemes with additional charges shows the progress of the business world,” said Razman.

Then there were also issues of security but given how CBDC will not be similar to cryptocurrencies; the introduction of CBDC would bring a different form of trust as it had the proper backing when compared to the latter which do not have any financial backing.

"Fiat currencies continued to remain in play in Malaysia with recent research showing a decrease of in cash usage however, it was non negligible and played a major role due to the high population in rural areas," Razman explained.