Malaysia is assessing the potential benefits of adopting a digital currency, as part of measures targeted at helping the country’s financial services sector capitalise on the new technologies.
“We are going one step further by experimenting with central bank digital currencies (CBDCs) over the next few years,” Bank Negara Malaysia governor Nor Shamsiah Mohd Yunus said in an email interview. “There’s no better way to keep pace with something new than to try it ourselves.”
While the central bank aims to speed up the growth of financial technology, it will ensure that new systems face similar scrutiny and safeguards to manage risks, she said.
This is an abridged transcript of the interview:
What are BNM’s aspirations for the domestic fintech sector?
Nor Shamsiah: Like many central banks around the world, we are paying close attention to the digital asset space, and the opportunities and risks that come with it. As with any emerging development, our goal is to ensure that the way we regulate and supervise continues to serve our monetary and financial stability mandates.
This is an exciting space, with many promising ideas and a lot going on. But I want to be clear that we don’t want to simply get caught up in all the hype and buzz. We do not promote technology for its own sake. It must deliver tangible benefits to the economy.
What are the drivers behind your plan for digital insurers and takaful operators?
NS: An important motivation for introducing digital players in insurance and takaful is to serve the objective of expanding coverage. Our insurance penetration is still low. Only 15% of SMEs have insurance or takaful cover, and 25% of lower-income working adults have some form of life insurance and family takaful cover.
Digital insurers and takaful operators can play a role by introducing more innovative offerings that better serve these segments. New players will inject greater dynamism into the sector. We also want to see traditional players undertake digital transformation to remain relevant in the face of competition.
What measures are you planning to further develop the domestic bonds and currency markets?
NS: Since 2018, we have gradually liberalised foreign exchange policy to provide greater flexibility for businesses and investors to better manage their forex risk. This has helped strengthen Malaysia’s position as a destination for foreign direct investment (FDI) and the country’s role in the global supply chain, as well as to widen global investors’ access to the onshore market.
Today, our bond market is included in major global indices. Global investors also have allocations to our market. Although global markets continued to be volatile, non-resident holdings of government bonds remained stable at around 25% throughout 2021.
For 2022, we will continue to work with market participants through the Financial Market Committee to further develop our market, including areas such as the collateralised funding market and the sustainable financing space.