KUCHING: The Center for Market Education (CME) has expressed concerns regarding the implications for currency competition, financial privacy, financial inclusion and national sovereignty in light of Prime Minister Anwar Ibrahim’s recent advocacy for swift adoption of digital finance in Malaysia.
In a statement, while acknowledging the potential benefits of digital finance, CME Research Associate Emile Phaneuf III urged caution against a hasty transition that could undermine the principles of currency diversity and individual privacy.
Among other things, he recommended the Bitcoin adoption where it can be used as a medium of exchange and store of value.
“Malaysia needs to move away from its viewpoint that, for legal purposes, digital assets are securities in every case. To borrow from an example from outside Malaysia, even under Biden-appointed Gary Gensler, whose reign as Chair of the US Securities and Exchange Commission (SEC) would be best characterised as hostile to Bitcoin and to cryptocurrencies more generally, Bitcoin was never considered a security even in that country.
“Additionally, with a Bitcoin and crypto-friendly Trump White House, the United States government is in a favourable position to build a ‘Strategic Bitcoin Reserve’, purchasing, over the course of five years, up to 1,000,000 bitcoins (around 5 per cent of the present supply of all existing bitcoins and just under 4.8 per cent of all bitcoins that will ever exist).
“As geopolitical rivals China and Russia stock up on gold, some legislators in Washington see stockpiling bitcoins as a way to ‘front run’ the market, snatching up finite bitcoins before many other nation states do,” he said.
As an example, he said that in 2022, the government of El Salvador went one step beyond merely adding bitcoins to its balance sheet when it made Bitcoin legal tender, along with the US dollar.
This, he added, actively encourages its residents to save and spend in Bitcoin, for merchants to accept it as payment, and it accepts Bitcoin as payment for taxes.
“The new arrangement allows citizens and residents of El Salvador to send remittances to the country from abroad, thereby avoiding remittance fees from the likes of Western Union and MoneyGram.
“While the IMF initially made some noise against the move to Bitcoin (and still does not support it), the USD-BTC dual tender economy gives El Salvador, a sovereign nation, a bit of leverage with such international financial institutions.”
Aside from this, he suggested that the use of so-called ‘stablecoins’ should be actively encouraged, or at least permitted without restriction.
Explaining further, he said that stablecoins are asset-backed blockchain-based digital assets.
“They come in the form of fiat-backing (USD, EUR, etc) but also backed by hard assets such as gold – Tether Gold (XAUT) being the more prominent example.
“Stablecoins are often used for traders of digital assets but also enable individuals to gain access to stronger fiat currencies such as the USD from high inflation countries without needing to interact with the traditional banking system,” he said.
Emile further recommended that taxes on alternative currencies should be rejected.
According to him, many countries apply a capital gains tax when a digital asset is sold or spent.
“Abolishing such taxes would have the advantage of enabling individuals and companies to choose the asset (or currency) that best suits their own circumstances.
“It would also apply pressure to the Malaysian central bank (Bank Negara Malaysia) to discourage inflationary spending.
“CME also advocates allowing individuals to pay taxes in currency other than the Malaysian ringgit.
“This could mean taxes paid in gold and silver (as some US states allow), in Bitcoin (as El Salvador and the Swiss Canton Zug allow) or in any other asset or currency acceptable to the Malaysian government,” he said.
In light of this, he opined that the Central Bank of Malaysia (BNM) should not serve as an active player in the future of digital finance, but rather, should welcome private innovation.
“As such, central bank digital currencies (CBDCs) should be emphatically rejected. There already exists a digital ringgit. Malaysia does not need another digital ringgit in the form of a CBDC,” he said.
Following this, Emile recommended that cash serves as a vital component of the financial system.
He stated that rather than being viewed as a relic of a financial system in decline, cash should be embraced by the Malaysian government and BNM.
He stressed that the Malaysian government can and should embrace private sector innovations in digital finance, while still fully meeting the demand for cash.
“As the Bank for International Settlements (BIS) itself admits, paper and coin cash is ‘the most inclusive form of money we currently have’.
“While the BIS calls for CBDCs to essentially replace paper cash over time because (it asserts) ‘using cash exclusively leaves the unbanked outside the formal financial system and without the data and transaction trail needed to readily access financial services’, Robert Neuwirth notes in his book Stealth of Nations that cash is a vital tool for the world’s poor.
“Neuwirth’s overarching point being that many who operate within the informal economy (and outside of the banking system) do so either because they prefer to or because the banks don’t want to do business with them. Thus, cash allows them to live with some level of dignity.”
Therefore, as for bank notes, he strongly suggests increasing the highest denomination bills, raising it from MYR100 to 200 or even 500.
“The largest bank note at present (100) is of low value. It should be recognised that cash is still an important tool for the world’s poor and it is a lot of work to launder large amounts of money when the largest denomination bills can only purchase a few Big Macs,” he said.
