Cryptocurrencies And Their Implications For Singapore And Asia
Singapore is keeping abreast as far as cryptocurrencies are concerned. As they evolve and keep up with the blockchain technology, they’re likely to become widely used. The market capitalization of cryptocurrencies seems to hit fresh highs almost every other week—a phenomenon that is being closely watched by most Asian central banks. Ravi Menon Singapore’s managing director of the Monetary Authority of Singapore (MAS) announced that the Singaporean government wishes to monitor the market but not wholly regulating it.
Many countries have however backed up the idea of crypto and blockchain regulation which many investors have affirmed that it will reduce investments risks and stabilize the market. The volatility swings in value are significant concerns for most crypto users as the market is quite challenging to predict.
The rise of cryptocurrencies
The primary reason for creating bitcoin can be associated with the global financial issues and the constant concerns of opacity and fragility of the world banking system. This seems to be one of the motivating factors behind the establishment of Bitcoin launched in 2009 by Satoshi Nakamoto.
There was also the desire by a few parties for a more decentralized financial and monetary management and to also decrease the monopoly power of central banks in monetary creation. This is not news in Singapore or Asia in general as there has been a lot of thoughts on free banking with the advocates arguing that money should be competitively issued instead of being issued by a particular entity—The Central Bank and being centralized in a country. The propeller of this view is Friedrich Hayek, an Australian economist who called for the privatization of money.
Another major cause for the rise of crypto is the natural consequence of fintech growth and the sharing economy which has not only led to massive transformational changes in the financial sector but has led to disruptions in the recent times.
In the crypto market, there are multiple valid concerns over money laundering, fraudulent and other criminal activities including financing terrorist groups due to the anonymous nature of most transactions which is not covered under the limited regulatory framework. Further, the actions in question can change very quickly like the case of Bitcoin sometime in August 2017.
Like any other business, technical disagreements are common which prompts various currencies to fork into two branches. Bitcoin is a typical example involved in splits. Therefore, it is apparent that these currencies need some regulations in order to prevent future disagreements and ultimate divisions. From the financial stability view, the rise of cryptocurrencies and initial coin offering (ICOs) may not have any related systematic risks due to limited linkages with the real economy.
However, as the use of cryptocurrencies grow wider and become more widespread, they will undoubtedly face potential risks. If this becomes the case, crypto use will significantly pose an impact on the effectiveness and conduct of the monetary policy, issuance and use of currencies (the tender issued by Central banks).
Arguably, of more potential concern is the overgrowing widespread of blockchain technologies, which underlie the cryptos. This decentralization creates apparent challenges for regulators.
China and Japan
Policymakers, as well as policy regulators, have recognized the need for cryptocurrencies and the distributed ledger technology. In most cases, there is little, or no choice as failure to accept the innovations may lead to disruption of their control over the payment system and the power to manage macroeconomy.
Japan has positioned itself to be one of the most cryptocurrency–friendly countries across the globe. The country has taken a well-calculated liberal approach as far as cryptocurrencies are concerned. In early 2017, the innovative country passed a law to regulate the virtual currencies, which they stated was a way of boosting the sectors. A few days after the regulation Japanese electronics retailers announced their support to accept bitcoin payments in a number of brick and mortar stores.
The country’s Financial Service Agency (FSA) also went ahead to ask cryptocurrency exchanges to register with them. However, certain conditions were put in place one of them is that exchanges must maintain a minimum capital stock of 10 million and other related terms. By the end of last year, it was announced that 11 registrations had already been approved while 17 of the applications lay pending.
In China, however, things are not moving so well, and China banned ICOs and went ahead to shut down cryptocurrency exchanges that were believed to be linked to illegal and criminal activities like pyramid schemes, financial fraud, and unlawful security issuances. The ban wasn’t permanent but was only meant to provide authorities with a chance to set up regulatory measures. This is due to the rapid growth the country has seen in the recent years. The China government thus takes cautious steps regarding cryptocurrencies and states that it won’t back down from doing whatever necessary to protect its crypto users.
The way forward for Singapore
Singapore is an ambitious country. The little island plans on becoming a Smart Financial Center. Along with Australia, South Korea, Canada, and a few others. Singapore is among the pioneers. MAS has been researching on the use of the digital version of a Singapore dollar to smoothen interbank payments. It is only through these experimentations that policymakers can completely understand best how to harness their benefits while at the same time putting in place the desired disclosure requirements and appropriate regulations to minimize risks by virtual currencies.
If policymakers work closely with industry players, they will gain more knowledge on the practicalities and also keep a dialogue with regulators from other countries due to the global scope of the matter. The Hong Kong Monetary Authority (HKMA) and MAS signed an agreement to share a number of projects in relations to blockchain technologies.
Little research has been done linking fintech and cryptocurrencies despite the explosion in the crypto industry. That creates a chance for Singapore to launch a large-scale research policy project related to the potentially transformative impact on how services by the government could be delivered, implications for central banking policies and blockchain technology.