Adherence to international standards on AML/CFT, including the ability to trace funds back to the source and to positively identify the beneficiaries of the funds, are indeed vital. In Malaysia, electronic money is prescribed as a designated payment instrument in the Payment Systems Act 2003 (PSA) and the Act is under the purview of the Bank. As such, any person who wishes to issue electronic money would be required to obtain the prior approval of Bank Negara Malaysia and is subjected to the prudential requirements imposed by the Bank. In 2005, in line with the objective of reducing the use of cash in the domestic economy, we liberalised our policy by allowing non-banking institutions to issue electronic money. In 2008, the Bank issued the Guidelines on Electronic Money, which outlined the broad principles and minimum standards to be observed by electronic money issuers. As at end-March 2010, 26 issuers have been approved to issue electronic money comprising both card-based and network-based schemes. During the past five years, the use of electronic money recorded encouraging average annual growth of 21.5% and 24.9% in terms of volume and value respectively. With regard to the oversight of electronic money issuers, in particular the non-banking institutions, our objective is to ensure the safety and reliability of the issuers’ systems and operations. We acknowledge, nevertheless, that in this rapidly changing commercial and technological environment, it is becoming increasingly challenging for regulators to develop policies that are effective and appropriate to address the regulatory concerns while at the same time, promote innovation.

My point is therefore that it is up to the critics to present proof of why more digitalisation would necessarily mean that inflation was held below the target for a long period of time. In the longer run inflation is determined by the monetary policy that is conducted on average and its effects on inflation expectations. A better explanation for the differences in inflation rates between countries around the world is therefore that they conduct different monetary policies. Having a credible benchmark for price setting and wage formation facilitates longterm planning for both individuals and companies. The inflation target is needed in particular when the world is changing rapidly as a result of major upheavals such as digitalisation. The alternative would be a less stable development and poorer opportunities for good economic growth. Clear game rules for a smoothly-functioning economy Let me summarise my thoughts: My assessment is that digitalisation contributes to a new way of producing, pricing and demanding goods and services. By maintaining a stable rate of inflation close to our target, monetary policy helps this changeover. To do so, we need to understand the development of economic activity, as well as the effects of structural changes in the economy. What we know is that labour markets change. They become more polarized, which makes it more important for people to update their skills to the new circumstances. The game plan for companies is changing. E-commerce can for example mean that companies’ prices change more often and become more sensitive to shocks.