Cryptocurrencies have exploded over the past few years, from a special investment to a mainstream investment. As a result, governments have begun to pay attention.
Policies vary widely within jurisdiction, but in Southeast Asia (SEA), general policy is one of skepticism. For example, Myanmar has banned all forms of digital currency since last year. Although Myanmar’s activities may seem excessive, their views on cryptocurrency seem to be ideal in this region.
Even governments friendly to cryptocurrencies in the region have enacted regulations regarding cryptocurrency and cryptocurrency trading, and some of which are not currently in place.
For Singapore, it has introduced its own set of crypto regulations, such as banning cryptocurrency-related advertising in public areas.
However, this indicates a discrepancy between public sentiment and public policy. While governments are warning against cryptocurrency, the public is hyping it and holding cryptocurrency as the future.
So what are governments concerned about and why have they taken a stand against cryptocurrency?
Potential for fraud and abuse
Given the anonymity of cryptocurrencies, it is understandable that governments should be wary of cryptocurrencies. The possibility of using cryptocurrencies for illegal transactions means that law enforcement agencies now need to consider and adapt to the possibility of using cryptocurrencies for money laundering, fraud and other financial crimes.
In fact, while cryptocurrencies have already seen a fair share of scandals, a crypto influencer has recently been in the spotlight for shilling bad currency.
For example, a number of SEA countries have enacted regulations for cryptocurrencies, relating to their potential use in financial crimes and other illegal activities. The Philippines has issued guidelines for virtual currency exchange, and has made it mandatory for these entities to work with the country’s Anti-Money Laundering Council. Singapore has followed suit, announcing regulations to curb money laundering and terrorist financing.
SEA’s reputation for drug dealing also probably dislikes cryptocurrency, such as the presence of insurgency and political instability, and it is not surprising that Myanmar and Laos have some strict rules against cryptocurrency. Myanmar has banned all digital currencies and Laos has only licensed two brokerages.
To be clear, cryptocurrencies are not only used for illegal activities – businesses and consumers use them for other reasons that are on board. Businesses have already begun to accept cryptocurrencies as a method of payment, and some businesses only accept crypto as a method of payment.
However, as noted above, governments have not shown the same enthusiasm. In fact, they have advised consumers to be cautious when dealing with cryptocurrencies. Let’s examine why.
Formulation of macroeconomic policy
The value of cryptocurrency can fluctuate tremendously in a short period of time. This instability means that there is potential for huge wealth, but also dramatic crashes.
Governments in Southeast Asia are well aware that building an economy from this volatile investment is probably a bad idea. The Asian financial crisis provides a strong reminder that in order to be sustainable, the economy must be built on solid foundations.
An economic bubble and the possibility of a subsequent crash that could cause major economic hardship is a possible reason why governments are reluctant to fully embrace cryptocurrency. Even countries like Singapore, which is considered one of the crypto-friendly countries, have their own reservations.
Robbie Menon, head of the Monetary Authority of Singapore (MAS), has previously announced that the central bank “frowns cryptocurrencies or tokens as investment assets for retail investors”.
That being said, MAS acknowledges that there are advantages to cryptocurrency and blockchain technology, and that Singapore is also currently looking at introducing the digital Singapore dollar.
Separately, MAS issued a statement stating that whether businesses will accept Bitcoins as payment is a commercial decision and will not interfere. The government has also indicated that it will not interfere in innovation and will allow the development of blockchain technology in Singapore.
Indonesia has taken a similar stance, with Commodity Futures Trading Regulatory Agency Bapebati setting requirements for a clearing house that deals with future exchanges and cryptocurrency assets. These requirements include security measures, risk assessment processes, and other capital requirements.
In short, these countries have decided that cryptocurrencies are risky investments, with potentially volatile effects that could affect the wider economy. That being said, technology and investment are not inherently volatile.
Therefore, when caution is required, a blanket ban is not required. What is needed is to be vigilant against malinvestment and economic bubbles.
Other ASEAN countries were not so friendly. The Securities and Exchange Commission of Thailand has declared cryptocurrencies highly volatile and possibly detrimental to financial security.
While investors, consumers and citizens can still trade digital assets for investment as usual, and digital assets can be used as payments between merchants and customers, digital asset operators are prohibited from using crypto as a means of payment.
Vietnam has banned the use of cryptocurrencies as a method of payment, and although there are no other rules yet, the State Bank of Vietnam has been instructed by the government to study cryptocurrency and to consider regulations for its use.
Vietnam’s position is certainly intriguing – it has invested heavily in its digital infrastructure and with considerable success. So why, in the case of cryptocurrency, would it be a break pump?
Financial stability and demand for currency
We should understand that SEA is a region of countries that are extremely jealous of their own sovereignty. For example, governments are often skeptical of anything that could threaten their own power.
For these countries is economic security and nationalism, so often refers to the control of their own currency, and the currencies operate within their own borders – this means another country’s fiat currency or, in this case, cryptocurrency.
The emergence and acceptance of cryptocurrencies already poses a significant threat to countries with weak currencies – such as Vietnam, Cambodia and Myanmar. All of these countries are struggling with weak currencies, which have consistently devalued foreign currencies.
These economies are also significantly dollarized, which means they have extensive internal use of the US dollar instead of their own domestic currency.
The growing demand for cryptocurrencies in these countries can be catastrophic – the demand for their own local currencies is already low, and if cryptocurrencies become mainstream in these countries, this could mean even lower demand for local currencies.
If this imaginary scenario happens, these countries will lose all the power to control their own monetary policy, so it is not surprising that all of these countries have expressed opposition to adopting cryptocurrencies.
Although Cambodia and Vietnam have not directly banned its use, significant de-dollarisation efforts are under way in all countries.
The Cambodian Securities and Exchange Commission issued a statement declaring that unlicensed activities related to cryptocurrency are illegal, and did not provide any information on how to apply for such a license, when the National Bank of Cambodia launched its own digital currency last year.
The government hopes that such a move would increase financial inclusion and free the country from the US dollar.
So did this system work? To some extent, yes. The Cambodian real and the Vietnamese dong have been relatively stable over the past few years, but the Myanmar kyat is an exception. This has led to continued devaluation, and civic instability seems to have driven more citizens to invest in crypto.
Lessons to be learned
Crypto policies may vary widely between countries, but its motivations are surprisingly constant – governments at SEA are motivated by the need for national security, and economic security is an important element.
It’s not just economic security – there are political and social security concerns, and it’s no surprise that governments have been reluctant to adapt technology to their own needs when refusing to accept wholesale.
The economic development of blockchain technology and cryptocurrencies is likely to be severely hampered, but they also bring significant risks to investors; And increasingly, these investors are located in that country.
It remains to be seen whether these policies will succeed in preventing the worst possible overhaul by cryptocurrencies. But if history is anything to go by, the future is promising.
Southeast Asian governments generally understand that no one can swim against the current forever. Instead, it is better to adapt to the situation and make the best of what happens.
By making City-State a hub for technological innovation and cryptocurrency, Singapore is probably the most likely to succeed. However, only time will tell whether SEA has taken the right approach and how enlightened or ignorant these approaches are.
Featured Image Credit: Forkast