Malaysia’s Central Bank said Monday that it will explore asset tokenization while monitoring crypto risks.
Bank Negara Malaysia (BNM) said in its annual report that the digital asset landscape is set to evolve further in 2025.
“While BNM has no intention to recognize crypto assets as legal tender now, BNM will continue to monitor developments in this space,
“This is to ensure that monetary and financial stability risks are contained and the integrity in the financial system is preserved,” it said.
At the same time, BNM said it aims to support responsible innovation through asset tokenization in the financial sector.
According to the bank, this will be alongside exploration work of domestic and cross-border central bank digital currency (CBDC) as well as emerging technologies.
“Moving forward, collaboration with the private sector is expected to gather pace,
“This will inform the approach Malaysia will be taking to capitalize the benefits of tokenization while managing related risks,” said the bank.
Indeed BNM sees the potential for asset tokenization to drive innovative use cases, as outlined in the Financial Sector Blueprint (2022–2026).
It opined that this will complement the bank’s research and exploration on domestic and cross-border CBDC.
Among others, BNM sees the potential for tokenized deposits to serve as a credible on-chain settlement asset to complement wholesale CBDC.
Like traditional commercial bank deposits, tokenized deposits issued by regulated financial institutions are a claim against an issuing bank, according to the bank.
“These banks would still be subject to BNM’s prudential requirements on liquidity and capital,
“As such, tokenized deposits allow commercial bank money to benefit from programmability and atomic settlement, while preserving the trust in the existing financial system,” it said.
Beyond tokenized money, BNM is also exploring the potential for broader tokenization of real-world use cases for the financial sector.
This exploration will involve collaboration with key stakeholders such as the Securities Commission Malaysia (SC) and the private sector.
It noted these use cases may include, but are not limited to, programmable payments, supply chain finance, and treasury and liquidity management.
To facilitate this exploration, BNM said it aims to issue a discussion paper on asset tokenization in 2025.
The discussion paper will outline high level principles and use cases to guide the industry to explore and participate in tokenization initiatives.
In addition, BNM’s Regulatory Sandbox also facilitates the live testing of innovative solutions that use distributed ledger technologies (DLT) and have the potential to enhance Malaysia’s financial system, in a controlled environment.
In Malaysia, the crypto asset market remains active but small compared to the overall size of the domestic financial market.
Based on the cumulative net deposit outflow from banks to domestic registered Digital Asset Exchanges (DAX), crypto assets represent less than 1 percent of the total banking system deposits as at end-2024 and around 0.4 percent of the market capitalization of securities listed on Bursa Malaysia.
Notwithstanding this, the crypto asset market in Malaysia has been active.
In 2024, total trading volume increased to MYR 13.9 billion ($3.14 billion), from MYR 5.4 billion ($1.22 billion) in 2023.
The number of domestic cryptoasset players and the variety of services provided have also expanded.
In 2024, there were 15 entities regulated by the Securities Commission Malaysia (SC), covering DAXs, custodians, initial exchange offering operators and crypto asset funds.
According to BNM, the involvement of banks in Malaysia in direct crypto asset activities mainly entails the provision of services to registered digital asset players.
This includes offering operating or trust accounts and facilitating payments and withdrawals for customers who buy and sell crypto assets.
While several banks seem open to increasing their exposure, BNM noted that most remain cautious of the heightened volatility and associated fraud risks, and this limits the transmission of risks to the broader financial system.
It is noted that crypto assets are not recognized as legal tender and not a regulated means of payment in Malaysia.
Their valuation is highly volatile, which makes them unsuitable to be used for payments (i.e. medium of exchange), for setting prices for goods and services (i.e. unit of account) and to be reliably saved, stored and retrieved (i.e. store of value).
To facilitate responsible innovation and support orderly development of the digital asset market, BNM and the SC have in place coordinating arrangements to oversee digital asset activities.
This arrangement aims to ensure systemic risk and financial integrity as well as investor protection measures remain effective.
The ‘same activity, same risk, same regulation’ approach ensures that players are subject to equivalent regulatory standards based on the risks they pose.
While risks to monetary and financial stability currently remain limited in Malaysia, BNM said it closely monitors the developments in this space to ensure any spillovers to the broader financial system is contained.
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