Malaysian Central Bank Explores Asset Tokenisation, Citing Crypto Holdings Below 1% of Bank Deposits

Malaysia's central bank, Bank Negara Malaysia, has disclosed in its annual report that it intends to back the tokenization of assets and investigate digital asset technologies, while not recognizing cryptocurrency as legal tender.

In its recently published 2024 annual report, Malaysia's central bank, Bank Negara Malaysia, acknowledged the increasing significance of tokenization and its potential to enhance efficiency in the financial system. However, the bank remains cautious about the risks associated with cryptocurrencies.

In a research report published on March 24, the central bank stated that despite the active crypto market in Malaysia, it remains small in comparison to the overall domestic financial market.

"Based on the cumulative net deposit outflow from banks to domestic registered Digital Asset Exchanges, cryptoassets represent less than 1% of the total banking system deposits as at end-2024 and around 0.4% of the market capitalisation of securities listed on Bursa Malaysia."

Bank Negara Malaysia

However, the central bank noted that the crypto market in Malaysia has been active in 2024, with the total crypto trading volume in the country increasing to around $3.06 billion, up from $1.19 billion in 2023, reflecting a growth of approximately 157%.

New opportunities

The central bank also highlighted its ongoing focus on exploring digital asset technologies, with a focus on supporting asset tokenization and the development of a central bank digital currency. In the report, the regulator noted that asset tokenization within the regulated financial sector is "creating new opportunities by enabling programmability, composability and atomicity."

"Among others, BNM sees the potential for tokenised deposits to serve as a credible on-chain settlement asset to complement wholesale CBDC. Like traditional commercial bank deposits, tokenised deposits issued by regulated financial institutions are a claim against an issuing bank."

Bank Negara Malaysia

While BNM acknowledges the potential of tokenization to drive efficiency in the financial system, it emphasized that cryptocurrencies would not be recognized as legal tender. Instead, the central bank plans to monitor the crypto space, which it expects will continue to grow in 2025.