KUALA LUMPUR (March 30): Bank Negara Malaysia (BNM) is actively scaling up its technical and policy capabilities to support its ability to issue a central bank digital currency (CBDC) for prospective use cases that could offer high-level benefits to the nation.

In its 2021 Annual Report, the central bank said while digital assets would have limitations, the underlying distributed ledger technology (DLT) can be harnessed for other applications, including the issuance of the CBDC.

As such, it has commenced a multi-year CBDC exploration through a three-phased proof-of-concept (POC), which will first focus on wholesale payment applications via its collaboration with international partners — the BIS Innovation Hub, the Reserve Bank of Australia, the Monetary Authority of Singapore and the South African Reserve Bank — on Project Dunbar.

Project Dunbar is involved in assessing the potential of CBDCs in addressing friction in cross-border payments, aiming to develop prototype shared platforms for cross-border transactions using multiple CBDCs, also known as a multi-CBDC network.

“Such a network enables participating financial institutions to transact directly with each other using CBDCs. By eliminating the need for intermediaries, this would significantly reduce the time and cost of cross-border payments,” it said.

That encompassed what Phase 1 of the POC, which started in 2021 and will continue this year, is about.

Following that, Phase 2 — from 2022 to 2023 — will explore innovative solutions using CBDCs and DLT to enhance and future-proof RENTAS, while Phase 3 — beyond 2023 — will look at the role of CBDCs in promoting innovation and enhancing retail payment diversity and resilience.

Read more stories from the BNM Annual Report 2021 here.