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.

The test of resilience of a bank or a system lies in its ability to absorb losses when a shock occurs – that is, its loss absorption capacity. For an individual bank, various tools, apart from surcharges or levies, should be considered. At the system level, adopting similar rules across institutions to prevent regulatory arbitrage should not inadvertently reduce the diversity in the global financial system. A variety of business models and investors with different risk appetites and liability-matching requirements may make for a more resilient system. 18. In the same vein, national regulators should explore a variety of approaches that are best suited to their conditions. Indeed, many emerging economies have banks that are systemic only in their local context, and national regulators need to consider how best to deal with these, even as we work together on global banks of systemic significance. 19. Third, post financial crisis, there is an understandable distrust of markets and supervisory judgment, and a preference to “hard-wire” most measures under Pillar 1 on capital. But we must not swing too far. Supervisors need to regain confidence and be prepared to exercise supervisory judgment – many economies have used macroprudential tools with some success by applying discretion. There is also scope for greater disclosure and market discipline under Pillar 3. Indeed, in the proposals relating to contingent capital – whether convertible bonds or bail-in arrangements, an understanding of the market dynamics relating to these instruments is crucial to their success. 20. Fourth, a sophisticated approach is not necessarily superior.