zeti akhtar aziz : innovative financing for transformation speech by dr zeti akhtar aziz, governor of the central bank of malaysia, at the langkawi international dialogue 2011 : innovative financing for transformation, putrajaya, 19 june 2011. * * * the world is transforming. our motivation for accelerating our own pace of transformation is to ensure that we will be able to effectively participate in this new economic and financial environment, and in the process, maximize our potential performance. central to this is having a well functioning financial system and the right financial policies. the recent financial crisis in the developed world has shown that when things have gone wrong in the financial system, the consequences have been catastrophic. instead of creating wealth – it destroys wealth, instead of generating employment – it results in job losses, instead of facilitating economic progress – it derails growth and development. it is my great honour and pleasure to speak at this 2011 langkawi international dialogue on innovative financing for transformation. the overarching objectives of economic transformation is surely to generate sustainable and balanced growth, to improve living standards, to create employment opportunities and to achieve a more inclusive development. this decade has however seen how innovative financing in several of the developed economies have fuelled excessive levels of leverage that have resulted in deeply indebted private and public sectors, which in turn have become highly destabilizing to their financial systems and to their economies. the challenge before us is how then should the financial system be developed and regulated so that these pitfalls will be avoided while at the same time remaining dynamic and innovative so that we can push our frontiers and gain the progress that we aspire. while innovation remains essential to economic progress, it needs to be within the context of stronger governance and sound risk management practices. positive innovation can make enormous contributions to economic performance. the financial system has to deliver the essential financial services that would cater to the financial needs of all sectors of the economy – from households, small and medium enterprises, including to micro enterprises and to the corporate sector. the financial system also has to take into account the fundamental changes taking place in the global economy and the growing participation of emerging economies in the global economy. as we become more interlinked, financial systems also need to become more internationalized to facilitate and reinforce this trend. the role of the financial system is essentially to effectively intermediate and to meaningfully mobilize funds including from across borders to be channeled to productive economic activity. such intermediation must be

gdp. in contrast, the average ratio for high users of electronic payments such as in the scandinavian economies is only 2. 9 %. the use of cheques is also dominant in our financial system, accounting for 96 % of the total value of non - cash payment instruments. these indicators suggest that measures to encourage more active use of e - payments would need to go beyond building the electronic payment infrastructure. it needs to address the broader issues revolving around building public awareness and confidence, promoting greater convenience ; reviewing business and operating practices and finally, addressing the commercial interfaces between the customers and the service providers. allow me to take this opportunity to elaborate on these issues. ladies and gentlemen, e - payment increases operational efficiency and improves productivity levels through expedient payments and receipts of funds as well as through the reduction or redeployment of resources used for handling cash and cheques. whilst the migration to e - payment may require considerable investment and effort to provide the enabling infrastructure, the use of e - payments provide consumers with greater convenience and security that would result in cost savings in the long run. in this regard, it is important for the financial institutions and payment service providers to provide more widespread access points for electronic payment services via multiple channels, including the automated teller machines, the point - of - sale terminals, the gated toll and parking gantries and through the network channels and devices, such as the internet and the mobile phones. needless to say, the payment products and services need to be continuously enhanced to meet the changing needs of the consumers. in addition, the efforts to increase the use of e - payments will not only hinge on the capacity of the service providers to ensure that e - payment services are convenient, but also secure. in the area of fraud prevention, the industry would need to be constantly vigilant to maintain consumers'confidence. robust technology and strong internal controls must be in place to protect and preserve the integrity of the financial system. in line with this objective, our banking institutions have successfully replaced the magnetic stripe atm and credit cards with chip - based cards to ensure a more secure environment for payment cards. this move has effectively eliminated counterfeiting and fraud involving atm and credit cards in malaysia. this has provided malaysia with the platform to further enhance payment card services by maximising the chip infrastructure. the conclusion of this year will see the completion of the industry - wide migration to europay - mastercard - visa ( emv ) standards with all of the point -