BNM Governor Datuk Muhammad Ibrahim
WASHINGTON: A “new real economy” calls for a new operating landscape, according to Bank Negara governor Datuk Muhammad Ibrahim. “In the “new real economy”, value creation will no longer just be generated by traditional growth drivers, such as manufacturing and banking services.
“Instead, the new economy is likely to be characterised by digital technological gains of unprecedented scale, scope and speed, possibly akin to the industrial revolution the world experienced 200 years ago,’’ he said in his speech entitled "New Models and Sources of Prosperity in an Uncertain World" at the 31st Annual G30 International Banking Seminar in Washington D.C. on Sunday.
Just as cyber security rules for floppy disks are no longer relevant, rules and regulations that were aptly designed for the “old economy” is bound to be irrelevant, or at worst, create perverse effects, he noted.
Hence, Muhammad said policymakers may need to develop new systems of regulations (a regtech for fintech) that is flexible enough to adapt, and robust enough to manage the rapid technological advancements. With economic growth increasingly stemming from techno-preneurs and start-ups, productions and markets are becoming less and less homogenous, he noted.
“As such, regulations need to be localised, particularly taking into account an economy’s specific needs and stage of readiness. For instance, while we universally share the importance of product safety, welfare of workers and consumer protection, the pace and types of regulation for Uber and AirBnB have been highly varied across countries,’’ he said.
Financial intermediation, he said, is a good example of how disruptive technologies are increasingly re-defining the financial landscape. A decade ago, Muhammad added a suggestion of peer-to-peer lending would be met with skepticism.
Currently, he said fintech companies are prominent competitors to our banks and have triggered the re-evaluation of our financial system. “Selfie pay” or Identity Check Mobile is going live in several European countries, he said, adding that in a sense, Fintech develops in response to changing consumer behaviour and needs, namely the preference for speed, convenience, safety, and even unanimity. Financial consumers demand and expected a different engagement model with financial institutions, he noted.
“Given the imminent expansion of fintech innovation, central banks all over the world have embarked on developing regulatory mechanism that balances the risks and opportunities posed by fintech phenomenon.
In fact, Bank Negara Malaysia is one of several central banks to introduce a regulatory sandbox to allow experimentation of genuinely innovative ideas while preserving consumer protection. It is clear that the rules have changed, and regulatory authorities are striving to cope with this new environment,’’ said Muhammad.
The immediate challenge for policymakers is to create an enabling environment to expedite the rise of this “new real economy”, he said, noting that from the emerging markets perspective, a critical aspect is infrastructure readiness – but with a bias towards the new economy. Under the new scenario, virtual connectivity is no longer an aspiration, but an imperative.
“However, while things are advancing rapidly in the virtual world, physical infrastructure needs to keep pace. Physical infrastructure remains the bedrock in transforming and delivering ideas into tangible goods and services for consumers, especially in emerging economies. Its development needs to be sustainable, anchored by shared governance between authorities and local communities.
Asean, with a population of more than six hundred million people, is estimated to require infrastructure investment amounting of over US$1 trillion by 2025. At a time when fiscal space is constrained, we are developing ways to attract greater private sector participation or public-private partnership in advancing our infrastructure development.”
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