Money Revolution (CBDC): Malaysia; a befitting Response

Malaysia is a forward-thinking country that is actively investigating how CBDCs might affect its financial systems such as financial inclusion, ensuring constant access to central bank funds, facilitating both domestic and international payments, and improving the dissemination of monetary policy. Furthermore, given their strong dependence on the local economy, privately issued digital assets like stable coins and crypto-assets are thought to pose a risk of currency substitution, which the CBDC seems to mitigate

In the revolution of the financial industry (CBDC), Malaysia is emerging as a major player. In 2021, Malaysia started work with its neighbors in Southeast Asia, including South Africa, Australia, Singapore, and other countries, to initiate a proof-of-concept (COP) for CBDC. The pilot program, known as Project Dunbar, aimed to use blockchain technology to speed up cross-border payment settlements. The project used two powerful blockchain channels, Corda from r3 and Quorum from ConsenSys, to provide users with secure payment transfers. The regulators hoped to demonstrate how decentralized ledgers could alleviate the burden on middlemen in more established systems by doing so. The CBDC project sought to reduce both the cost and the length of payments. Through proof-of-concept and experimentation, they have focused their research on CBDC, strengthening their technical and policy capabilities to exploit CBDC in a better way in the future.

In January 2022, Malaysia launched a five-year Financial Sector Blueprint (FSB) during Fintech week. In FSB, among five strategies one strategy is totally about advancing the digitalization of the financial sector. The FSB is focusing on integrating Regulatory Sandbox with industry and national-level initiatives to increase innovative financial products and services. For CBDC’s prospects, Bank Negara Malaysia (BNM) is taking the services of other regulatory authorities such as Malaysia Digital Economy Corporation (MDEC) and Malaysia Research Accelerator for Technology and Innovation (MRANTI), connecting the Fintech startups with CBDC. The use of AI, ML, and Natural Language Processing (NLP) could improve the supervisory function of the regulatory authorities, which are also in consideration of BNM.

Malaysia’s Security Commission reported that more than 16 billion dollars were pumped into digital assets and cryptocurrency between September 2021 and August 2022. Furthermore, BNM gave 5 digital banking licenses to the applicants in recent years which is a welcoming and positive sign toward the digital revolution of the finance sector. In addition to that Malaysia signed an agreement with Singapore, Indonesia, Thailand, and the Philippines for QR Code payment systems. People would buy goods and services in the region via QR Code Scanning and then avoid the involvement of the US dollar as an intermediary. In the same fashion, Malaysia, Singapore Australia, and South Africa started cross-border payment systems by digital currency transactions. Malaysia is observing member of the m-Bridge project, which is a multi-CBDC platform for wholesale cross-border payments.

There are different schools of thought regarding Malaysia's Central Bank Digital Currency movement. Some people think that the CBDC will have a significant trajectory on Malaysia's finances. However, some people consider that this may increase government enforcement and intervention on private money. Some suspicious about the CBDC system, will allow authorities to monitor transactions and even impose restrictions in response to legal activity or citizen behavior. It's also crucial to keep in mind that the transition from physical ringgit to CBDC could be challenging and because of rural issues, Malaysia is unlikely to become a completely cashless society.

Digital Currency has the potential to be a weapon used by the government to usurp authority from the people. This could lead to financial de-platforming, in which a person's account is blocked by the government, denying them access to their money and making them an instant social outcast.

Notwithstanding these reservations, central banks are assessing the benefits of issuing CBDC in light of the quickly developing digital asset and payments landscape. Ultimately, the CBDC revolution presents opportunities and challenges that should be carefully considered, even though it also has a lot of promise. Understanding digital assets, their characteristics, the underlying technology, and the associated risks is critical for the general public.

By recapitulating, the emergence of CBDCs in Malaysia is a must. The success of this financial revolution is largely dependent on the convergence of technological innovation and public involvement. Malaysia has the chance to create a CBDC framework that is not only technically sound but also socially inclusive and widely accepted by taking into account the confidence of its citizens. The catalyst for Malaysia's CBDC revolution will be the convergence of public opinion, emerging technologies, and regulation of policies. This will help the country move toward a future where digital finance is not just convenient but also vital to the health of society and the growth of the economy. , last but the least the Sustainable Development Goals could also be achieved if the CBDC is implemented in a true sense by the Malaysian government and owned by its people. 

Muhammad Awais ul Abid