Summary of the Development of CBDC in Malaysia

Digital currency is a form of money that is available virtually and can be used instead of cash for conducting payments. The adoption of Digital currency has evolved rapidly in the last decade. Many countries around the globe have conducted resilient research projects which led them to the successful generation of Central Bank Digital Currency (CBDC).

As the money revolution is overwhelming the globe due to its mass-level acceptance among the countries. Malaysia also could not resist to digital revolution. Malaysia is also welcome the digital currencies i.e. Bitcoin, Cryptocurrency, Ethereum, to name but a few. As things are difficult in their initial phases, so is Malaysia. From consumer behavior and attitude toward CBDC to legal framework to the response of Malaysian government, and to the impact of digital currency on its economy, CBDC underwent a transitionary phase in Malaysia.

When it comes to the legality of the Digital Currency, in Malaysia, digital currency is legal but its status remains unregulated as the Central Bank of Malaysia does not issue digital currency. Bank of Negara in 2017, issued regulations and guidelines that all the money exchanges operating in Malaysia, using digital currency have to register themselves with the Security Commission of Malaysia (SCM), whose is responsible for the protection of investors and businesses from fraud, money laundering and terrorist funding.

State institutions like Bank Negara Malaysia, the Security Commission, commercial banks, and the Malaysian Digital Economy Corporation are providing support to technology companies and startups to enable the advancement in the financial systems with the help of emerging technologies.

In response to the money revolution, Malaysia underwent a transitionary period from reluctance to the adoption of the digital revolution.  There are certain initiatives that are taken by the state of Malaysia. Among these initiatives, the government took ownership of CBDC and took practical steps. The project Dunbar in 2021 is the clear manifestation of Malaysian initiatives, in which there are three phases in the first phase there is cross-border wholesale CBDC then domestic wholesale, and the third one is domestic retail CBDC.

Moreover, Malaysia used two significant channels for the digital currency: Corda and other one is Quorum. In addition, the government started issuing licenses to business entities. In the same manner, Bank Negara Malaysia BNM is exploiting the services of other regulatory departments such as Malaysia Digital Economy Corporation (MDEC) and Malaysia Research Accelerator for Technology and Innovation (MRANTI) for the sake of Fintech startup with CBDC. Furthermore, Malaysia started a QR Code payment system with its neighboring countries to minimize issues of cross-border transactions. Malaysian regulatory authorities placed a check on digital risk, money laundering, and threats with respect to financial activities. Owing to these steps and initiatives, the people of Malaysia are now confident and willing to adopt e-revolution because they feel secure and consider more facilities to do financial activities in the digital era.

Malaysia is known for its rapid growth both at social and economic levels in the last few decades. Its economic condition is stable and despite the challenging global political and economic situation, its growth is estimated to be 4-5% for the year 2023. In terms of digital currency evolution, Malaysia is not behind in the race and has initiated its efforts to launch CBDC. Currently, cryptocurrency is legal in Malaysia but a lot of efforts have been initiated to strengthen the legal aspects of digital currency. 

Research highlights that Bank Negara Malaysia (BNM) is conducting all precautionary measures assessments and establishing strong efforts to launch CBDC shortly. The issuance of CBDC is projected to advance the financial sector of Malaysia to ensure a prompt, transparent, secure, and efficient payment system. However, the Malaysian government needs to take strong measures to overcome the associated risk with the issuance of CBDC at the same time to safeguard its financial and economic environments.

As far as the consumer response is concerned, in the early stages they are unwilling to adopt the digital currency. Customers are suspicious about the fraudulent activities, however, with the passage of time, the use of digital currency is in vogue.  Compared with traditional modes of financial activities, digital currencies are fast and efficient, this significant feature of e-revolution attracts the young customers of Malaysia. As digital currency is about technology, tech-savvy people are more keen to adopt this advanced system of technology.  

Another factor for the prevalence of digital currency is the positive and welcoming attitude of financial institutions and service providers. The financial inclusion of digital currency and the decentralization of money is also the breeding ground for the popularity of the digital revolution among customers. Government support and ownership of the CBDC also instigate the customers to accept digital currency. Digital currency is contributing to the cross-border payment systems and enhancing financial inclusivity in the world. 

Moreover, checks on digital risks are adopted by the state which is due to the Central Bank Digital Currency.  Therefore, it is crystal clear that the digital revolution comes with prospects and is a game-changer for Malaysia and it must be considered as such.