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March 31, 2021

No Need to Use CBDC - BNM

 Bank Negara Malaysia (BNM) has no plans to issue the Central Bank Digital Currency (CBDC) in the near future.

Through the 2020 Annual Report, BNM informed that the financial system in the country continues to support economic functions as well as meet the needs of individuals and consumers.

“To achieve this goal, the existing monetary and monetary policy tools remain effective in maintaining monetary and financial stability.

"In addition, domestic payment systems including the Real -Time Retail Payment Platform (RPP) continue to operate safely and efficiently to support economic needs and enable real -time digital payments," he said as reported by Bernama.

The report also noted that technological advances and the rapid rate of digitization have led to an increase in the use of digital payments as well as the emergence of private digital assets such as Bitcoin, Ethereum and Stablecoin.

Most digital assets in their current form, are not used as payment instruments because these assets do not exhibit the universal characteristics of a piece of money.

In essence, the characteristics of digital assets prevent them from being a good store of value and a medium of exchange due to the fact that digital assets are vulnerable to volatile price fluctuations, cyber threats and lack of scalability.

“For example, the price of Bitcoin recorded a sharp decline of 39% in a single day in March last year. Therefore, the public needs to have a clear understanding of digital assets such as their features, the underlying technology and the associated risks, ”said BNM.

According to BNM, new forms of digital assets such as Stablecoin have also been introduced to reduce fluctuations in value by linking or supporting them with fiat currency assets.

BNM will also actively assess the potential value proposition of CBDC based on developments in the digital asset and payments landscape as the situation evolves rapidly.

Key policy decisions on CBDCs will be made based on clear benefits to Malaysia as a whole, while ensuring that the associated risks arising from the production of CBDCs, in particular financial stability risks, are effectively managed.

The issuance of CBDCs needs to be complementary to existing payment instruments including physical cash to ensure that all citizens of the country, especially the underserved communities, have continued access to secure and efficient payment solutions.

“BNM will also actively monitor trends in key indicators that have a direct impact on its mandate, which can serve as a useful data reference for assessing the appropriateness of CBDC production.

"Among others, these key indicators include the level of use of physical cash in Malaysia, the extent to which privately issued digital assets are used for payment purposes in Malaysia and the extent to which CBDCs are being used to facilitate cross -border trade," according to BNM.

As part of efforts to improve understanding of the associated risks and implications for policy, the central bank is actively building internal capacity to support adequate information -based decisions recognizing CBDC production including implementing proof of concept (POC).