KUALA LUMPUR: Bank Negara Malaysia’s participation in Project Dunbar, a cross-border central bank digital currency (CBDC) initiative, is a sound move, said Professor of Economics Anella Munro.
She said the participation demonstrates Malaysia’s commitment to being at the forefront of regional financial innovation.
“Being part of this project certainly fits into the goal of understanding what it is, developing capacity, considering potential use cases, and collaborating with others, some of whom have experience and some who do not. From an outsider’s perspective, I believe Bank Negara is doing all the right things,” she said in an interview with SunBiz.
Munro said while there are other ways to facilitate cross-border transactions, CBDCs remain a superior option.
“None is really as good as a central bank digital currency because it’s a safe settlement asset, like we use at the wholesale level, and I hope it would help potentially with transparency, speed, and cost.”
She said cross-border payments have traditionally relied on correspondent banking systems, which are slow and expensive.
“What if we had a system that provided a safe settlement asset for cross-border transactions at the wholesale level?”
However, Munro said, with cross-border CBDC implementation, there are a lot of issues about governance.
“It’s more complicated than it seems, due to jurisdictional and legal issues, in addition to technological challenges.
“It’s a sovereign currency, do you want it on the same platform? Do you want it to be used abroad? Borders become irrelevant once you’re on some of these platforms.”
She pointed to stablecoins which could provide a similar kind of service, although they are not as strong as central bank liabilities because they come with a different kind of counterparty risk.
“If stablecoins are very well backed, they could potentially serve as a settlement asset in the system,” Munro said.
She said stablecoins were a disaster a few years ago as they were not properly backed and were considered the Wild West.
“They say they’re stable, but often back themselves with questionable assets. This has changed a lot in the last few years, but the area is still an open question. The regulation has really come in to tame them and make them much more what they say they are.”
The push for CBDCs dates back starting with China’s e-yuan project in 2014. When Facebook Libra came around in 2019, it renewed focus on the area, driven by concerns over big tech potentially controlling global payment systems and private data from social networks.
Munro also highlighted that the fear of privacy issues and the potential for unregulated payments within private networks has led to the current push for CBDCs. “Not only were there privacy concerns, but if a payment system operated within a private network, it could avoid oversight for anti-money laundering and other regulations, which was a significant problem.”
