Abdul Rasheed Ghaffour: Opening remarks - Forum on Central
Bank Foreign Currency Operations
Opening remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the OSSP-BNM-SEACEN Forum on Central Bank Foreign
Currency Operations, Kuala Lumpur, 6 August 2020.
* * *
It is my great pleasure to welcome all participants to the OSSP-BNM-SEACEN Forum on Central
Bank Foreign Currency Operations. My appreciation also goes out to OSSP and SEACEN
Centre for organising this forum. Although we have been looking forward to hosting all delegates
and speakers in Kuala Lumpur, I am glad that technology has enabled us to come together
regardless of this challenging time. I believe this forum is timely, given the myriad of issues
associated with the current global landscape and the evolving environment for cross-border
payment operations.
The COVID-19 pandemic has caused widespread disruption within an inconceivably short
period. We see disruptions in the lives and livelihoods of families and individuals; in the way work
is done and trade conducted; and in our perspective of the world and our solutions to its
problems. In at least one area we see the pandemic accelerate a growing trend both
domestically and internationally - in digital trade and e-commerce. Retail purchases have more
than halved year-on-year, and this gap is quickly filled by the rapid growth of e-commerce. This
digitalisation trend is likely to continue post-pandemic with new norms in day-to-day domestic as
well as cross-border economic activities.
This change is deeply felt by financial services providers which saw decreased domestic and
cross-border transactions, including a projected fall of about 20% in remittances in 2020. This
pandemic has also compelled central banks to reconsider the robustness of their national
payments systems, implement electronic cashless banking options, and safeguard against
cyber threats.
Recent developments in cross-border payments landscape
In recent years, the scale and importance of cross-border payments have grown in line with the
growth of cross-border economic activities, with an estimated global transaction value of
USD136 trillion in 2018. However, there is wide recognition that cross-border payment services
remain inefficient, as compared to domestic payments. The common challenges facing
crossborder payments can be attributed to cost and speed, lack of transparency, and limited access:
Reliance on multiple intermediaries and correspondent banking with varying levels of
operational efficiency, local requirements and cut-off times effectively lead to
longer
processing time and incur higher cost;
Lack of transparency in the traceability and visibility of payment status, primarily due to
lack of standardized payment status notification process; and
Limited access of cross-border payment services, often caused by time zone differences
and mismatch in operating hours of intermediaries.
Given these challenges, I believe that more innovative approaches are required to ensure that
users can access safe and affordable cross-border payment channels. If banks are not providing
these critical cross-border financial services, users may resort to less- or non-regulated
channels.
Recently, new business models and arrangements have also emerged to address the prevailing
gaps in the cross-border payments space. These among others include the introduction of
SWIFT's Global Payment Initiative (SWIFTgpi), a pioneering attempt at linking payment
infrastructure through the experimental usage of distributed ledger technology. These have the
potential to improve efficiency, allowing faster, secure and transparent cross-border payments.
At the ASEAN level, efforts have been made to foster greater regional integration through linkages
of the real-time retail payment infrastructures (RT-RPS). The ASEAN Payments Policy
Framework was established as a set of principles to facilitate the linkages of RT-RPS. Bilateral
arrangements have also been established by several ASEAN countries, including Malaysia, to
enhance the efficiency of cross-border payments. For instance, linking between Singapore's
PayNow and Thailand's PromptPay to facilitate more seamless cross-border payment
transactions in real-time, and similarly to extend the linkage to Malaysia's DuitNow. Once
operationalised, this could enable cross-border payments between participating financial
institutions to be virtually as seamless as domestic transactions.
At the national level, Bank Negara Malaysia (BNM) is directing its regulatory and supervisory
resources towards safeguarding the safety and soundness of payment and remittance systems.
We are stepping up efforts to reinforce public confidence and acceptance of e-payment and
eremittance services, particularly among underserved segments. We are also working to
futureproof the country's payment infrastructure to meet evolving market needs, including migrating to
the ISO 20022. As a global messaging standard with richer data content, ISO 20022 has the
potential to drive greater payments efficiency, facilitate risk management and compliance with
regulations as well as facilitate cross-border connectivity. This move towards a common global
standard will address issues relating to diverging regulatory and technical standards which have
increased friction in making payments and made the cross-border payments landscape more
complex.
Embracing financial innovation to enhance cross-border payments efficiency
Aside from the global pandemic, the other key disruption to our established view of cross-border
payments is financial innovation. There has been growing awareness that the underlying
technology for digital assets such as distributed ledger technology (DLT) may have the potential
to improve payments efficiency, particularly from the cross-border payments perspective. Some
central banks have made significant strides in exploring the potential of this technology, including
testing the use of blockchain and DLT for clearing and settlement of payments and securities.
The rapid shift from cash towards other payment platforms, has also intensified calls for central
banks to issue Central Bank Digital Currency (CBDC) to protect the country's monetary
sovereignty. Many central banks, including BNM, are exploring the merits and feasibility of issuing
CBDC. Preliminary findings highlighted that this may offer some solution to the challenges
associated with cross-border payments (e.g. synchronised cross-border transaction between
different currencies across different platforms, reduced number of intermediaries and improved
transparency of payment status).
A BIS survey in January 2020 found that more than 80% of central banks, compared to only 70%
in a survey the year before, are looking into CBDC, suggesting that there is greater openness to
issuing a CBDC than a year ago. The survey also shows that emerging market economies
report stronger motivations and a higher likelihood that they will issue CBDCs. Although many
central banks are considering CBDCs, they appear to be proceeding cautiously, with only about
10% of central banks say they are likely to issue a general purpose CBDC in the short term and
20% in the medium term.
Whether it is for DLT, CBDC or other innovations in financial technology, it is important for
central banks to continue cross-border cooperation in order to realise successful digital
transition. Harmonisation of standards and data privacy across jurisdictions; information-sharing;
and support for cross-border integration through the various international platforms, are some of
the ways for central banks to contribute to this transition.
Preserving safety and soundness
As we embrace financial innovation, we need to be mindful of the risks of unintended
consequences such as cyber threats and spread of illicit finance. These areas, which were
already the focus of central banks, have become increasingly important with the advent of the
Covid-19 pandemic. An increasing number of cyber criminals are exploiting the current pandemic
for their own objectives. As a central bank with a mandate to promote financial stability, it is our
duty to ensure the safety of funds when they are most vulnerable, in particular once funds have
left the bank.
In response to these modern threats, central banks have strengthened risk management
frameworks and implemented awareness programmes both internally and for the public.
However, some of the risks we are addressing, while familiar, are beyond conventional central
bank expertise. The complexity of the challenge requires public-private cooperation to strengthen
mutual expertise and build solutions. Some of the risks, such as cyber threats, also transcends
national borders. Solutions must involve international collaboration, such as the ASEAN initiative
on Cybersecurity Resilience and Information Sharing Platform (CRISP). This platform allows
central banks within the region to share cyber-related information and encourage capacity
building. It is a testament to the interconnected nature of financial services that national financial
stability requires international cooperation.
Closing
The pace of innovation in payment services combined with the economic effects of the pandemic
are putting pressure on authorities to make progress on cross-border payment issues. In
addressing these issues, we have to be mindful of the fact that not all central banks are
progressing at the same pace. What is important is the common direction that central banks
adapt to change to build a stronger and more robust financial system for all.
With this in mind, there are questions that I hope the Forum can attempt to answer. First, how
can central banks create a safer environment to facilitate cross-border payments? Second, how
can central banks more broadly balance between supporting financial innovation whilst ensuring
financial system safety and soundness? Third, what can central banks collectively do to this
end?
In 1963, John F Kennedy famously said "Change is the law of life. And those who look only to the
past or present are certain to miss the future." On that note, let me thank you again for being
here and I wish you productive discussions in the Forum.