KUALA LUMPUR (March 31): Bank Negara Malaysia (BNM) does not have any immediate plans to issue Central Bank Digital Currency (CBDC).

The central bank said in Malaysia the financial system continues to support the functioning of the economy while meeting the needs of individuals and businesses.

“To this end, the existing monetary and financial policy tools have remained effective in safeguarding monetary and financial stability.

“Moreover, domestic payment systems, including the real-time retail payments platform (RPP) also continues to operate safely and efficiently to support the needs of the economy and allow real-time digital payments,” said BNM in its Annual Report 2020.

The report shared that technological advancements and increasing pace of digitalisation have led to the rising adoption of digital payments and the emergence of privately-issued digital assets, among them Bitcoin, Ethereum and Stablecoin.

Most digital assets, in their current form, are not used as payment instruments primarily because they do not exhibit the universal characteristics of money, it said.

In essence, BNM said their characteristics prevent them from being a good store of value and medium of exchange as they are prone to price volatility, vulnerable to cyber threats and lack scalability.

“For example, the price of Bitcoin recorded a steep decline of 39 per cent within a single day in March 2020. Hence, it is crucial for the public to have a clear understanding of digital assets such as their features, underlying technology, and corresponding risks,” it said.

It said it is noteworthy that new forms of digital assets such as Stablecoin have also started to emerge, which seeks to minimise volatility in their value by linking or backing it with assets such as fiat currency.

Given that this is a rapidly evolving situation, the central bank said it will actively assess the potential value proposition of CBDC in light of developments in the digital assets and payments space.

It said key policy decisions on CBDC will be guided by clear benefits to Malaysia as a whole, while ensuring that the associated risks arising from CBDC issuance, particularly financial stability risks, are effectively managed.

CBDC issuance, BNM said, should complement existing payment instruments including physical cash to ensure that all Malaysians, in particular the underserved communities, have continued access to safe and efficient payment solutions.

“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,” it said.

BNM added that as part of its efforts to enhance understanding of the associated risks and policy implications of CBDC, the central bank is actively building internal capacity to support informed decisions on CBDC issuance including by conducting proof-of-concept.

Read more stories from the BNM Annual Report 2020 here.