Malaysia’s financial system remains strong despite global digital asset market capitalisation

KUALA LUMPUR: The global market capitalisation of digital assets peaked in 2021, however, this trend has reversed since then amid geopolitical uncertainties, rising interest rates and inflationary pressures in 2022, but it has a minimal impact on Malaysia’s financial system.

The market capitalisation of digital assets peaked at US$3.1 trillion (US$1=RM4.394) in November 2021 after sustained increases since June 2020, and by December 2022, the market capitalisation of digital assets stood at US$830 billion, down 73 per cent from its peak.

Bank Negara Malaysia (BNM), in its Financial Stability Review for the second half of 2022 (2H2022) released today, said that spillovers from cryptocurrency’s recent reversal have had little impact on Malaysia’s financial system.

“The digital asset market in Malaysia remains small relative to the domestic financial market, with limited linkages between the two.

“The cumulative net deposit outflow from banks to the four regulated domestic digital asset exchanges represents only 0.6 per cent of the total banking system deposits for individuals as at end-December 2022,” it said.

BNM elaborated that interest by banks to engage in digital asset activities also remains mostly at an exploratory stage and growing linkages could however increase financial stability risks.

Hence, BNM would also continue to coordinate closely with the Securities Commission Malaysia in monitoring developments surrounding digital asset-related activities in Malaysia.

“We will continue to strive and balance the risks and opportunities associated with such activities in progressing a more vibrant digital financial services landscape as envisaged in the Financial Sector Blueprint,” it said. –Bernama