Malaysia’s central bank has launched a new roadmap that explores tokenization of real financial assets over the next three years. The roadmap, which is now open for public feedback, prioritizes monetary stability and economic growth.
Bank Negara Malaysia (BNM) recently is published a Discussion Paper on Asset Tokenization, which aims to “co-create a secure and sustainable roadmap for the development of tokenized financial services in Malaysia.”
BNM notes that Malaysia must not lag behind in the rising wave of tokenization, which some studies project could unlock a 23 trillion dollar opportunity no later than 2033.
“…BNM sees strong value in accelerating tokenization exploration to ensure Malaysia’s financial sector remains competitive and efficient. In addition, tokenization offers an opportunity to advance national priorities by enabling innovative new solutions in support of sustainability, Islamic finance and digital economy goals,” the paper said.
While it supports tokenizationthe apex bank clarified that it does not support decentralized digital assets.
The roadmap sets out a clear goal: to promote responsible innovation in tokenization that delivers tangible, real economic benefits. This can only be achieved through a co-creative approach involving key financial industry stakeholders, the bank says. Moreover, any innovation must maintain monetary stability and financial integrity.
BNM’s step-by-step approach
Malaysia will take a phased approach in its tokenization journey. Earlier this year, the government set up Digital Asset Innovation Hub to accelerate the adoption of blockchain technology and the integration of digital assets in the country’s financial sector.
The hub will host collaborations between participants exploring tokenisation, with the Asset Tokenisation Industry Working Group leading the project. The group was formed in May to explore use cases, facilitate capacity building and monitor potential risks and regulatory gaps.
In the second phase, starting next year, participants are expected to begin their live pilots and proof of concept in a controlled environment. These tests will continue through 2027, and the results will guide the next steps.
BNM identified the supply chain financing, financial and liquidity management, sustainable financing, programmable payments and a more efficient Islamic financial system as the most potential use cases for tokenization. It also singled out cross-border payments as a sector that could benefit from tokenized payments as they would “support liquidity, reduce settlement delays and improve the efficiency of trade transactions.”
The top bank will remain technology agnostic and encourages participants to explore both decentralized blockchains and approved ledgers in theirs applications. The decision should be guided by specific use cases, but the underlying technology must deliver resilience, interoperability, inclusiveness and adaptability.
Where participants deploy applications on public blockchains, they must build authorized access on top of the public network, the bank recommends.
However, BNM noted that permissive frameworks remain the preferred option. This is particularly important when enforcing due diligence practices such as Know Your Customer (KYC) and Anti-Money Laundering (AML).
“While some blockchain-based systems offer transaction traceability, relying solely on ex-post detection and tracking may present some challenges, particularly where identity masking, token mixing or cross-border transactions may impede effective enforcement,” it said.
Digital Ministry doubles down on blockchain, tokenization
Malaysia’s digital ministry has separately pledged to speed up adoption of blockchain and tokenization in the country. In a statement on Monday, the ministry said it is still committed to implementing the National Blockchain Roadmap, is launched at the end of 2022.
Digital Minister Gobind Singh Deo said that blockchain can enable government to become more transparent and efficient, while increasing security for businesses and individuals. He was responding to a query from Syerleena Abdul Rashid, Member of Parliament for Bukit Bendera, on the progress of the 2022 Roadmap.
The ministry is also pushing tokenization alongside other government agencies, including BNM and the Securities Commission.
“The application of blockchain technology through tokenization will also be studied, especially in asset management and capital market development, to ensure transaction security and the stability of the digital ecosystem,” the minister said.
The digital ministry has set up a National Blockchain Policy Task Force to guide its implementation of the roadmap, Deo added. The working group consists of industry experts, academics, decision makers and government officials from relevant ministries.
“Furthermore, among the key strategies being considered to ensure local workforce readiness in the blockchain space are providing higher education institutions, strengthening workforce readiness and industry matching,” he added.
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