Differing Governments' Attitudes Towards Cryptocurrency
Cryptocurrency, a digital currency where its ledger is secured through blockchain technology, is not issued by any central party such as banks, governments or companies. On the one hand, this means cryptocurrency transactions are fast, cheap and invulnerable to any control. On the other hand, accounts are susceptible to hackers and transactions could be used to fuel illicit activities. Thus, how are developing governments around the world regulating the widespread use of cryptocurrencies?
Positive embrace of Cryptocurrency
El Salvador
Two weeks ago, El Salvador officially adopted bitcoin as its legal tender, alongside the US dollar. Every El Salvadoran has been gifted $30 in bitcoin to use for any financial transactions on Chivo, the new fintech platform. President Nayib Bukele hopes bitcoin will reduce high transaction costs (commission fees) for citizens sending remittances through financial institutions of which only 30% of El Salvador population have access to since 70% of Salvadoran do not even own a bank account. The World Bank estimates that around 24% of personal remittances make up the GDP of El Salvador and this estimation could continue to rise if bitcoins are to become the popular choice of currency. El Salvador will also offer permanent residency for bitcoin investors as it hopes to boost FDI.
However, the use of bitcoin is not without its challenges. Due to the volatile nature of bitcoin, El Salvador will have to spend around $225m to buy bitcoins in hopes of stabilising the currency’s price. Chivo has had a rough start as major phone systems on Apple and Android had not accommodated the software. On the 200th anniversary of the country’s independence, there were a minority group of protestors demonstrating against the adoption of bitcoin and President Bukele’s authoritarian rule. Despite this, President Bukele is determined to persevere with the use of bitcoin as he announces that “2.1m Salvadorans are actively using Chivo...having more users than any banks in El Salvador.”
Laos
A week ago, Laos legalised crypto trading and mining to help combat the reduction of tourism due to COVID-19 (tourism accounts for 13% of its GDP) and alleviate the debt that Laos incurred from building hydro-electric dams along the Mekong River. The six companies to start mining will be Wap Data Technology Laos, Phongsubthavy Road & Bridge Construction, Sisaket Construction, Boupha Road-Bridge Design Survey, Joint Development Bank and Phousy Group. These companies will reap the benefits from the surplus of cheap hydropower and can even put forward the alternative argument that their crypto mining will in fact be carbon neutral. Due to the questionable nature of crypto trading, Laos is also expected to face a surge of notorious criminal activities where cryptocurrency transactions could aid these payments. These include narcotics production from the region of the The Golden Triangle, human trafficking and money laundering.
Outright ban of Cryptocurrency
China
On the 24th of September, China announced that all cryptocurrency transactions are illegal. The People’s Bank of China said that “all illegal financial activities are strictly banned and will be eliminated in line with laws”. In cooperation, other Chinese government agencies have already listed cryptocurrency mining as a sector to be eliminated. Although this does not come as a surprise as China has been clamping down on cryptocurrency throughout the year, it will undoubtedly hit the major players of the industry. Crypto exchanges such as Binance no longer register new Chinese users and Huobi Global is in the middle of de-registering Chinese users. Mining companies are also attempting to sell their physical capital (equipment, devices) overseas, causing a dump of processing equipment, driving down prices. Many had held onto hope that local regions that were reliant on the cryptocurrency industry would remain unaffected.
This final crackdown is a result of the state’s increasing desire to play a more active role in digital payment and creating a digital yuan. The works of fintech companies and their features, Alipay and WeChat pay have paved the way for China to become the biggest market for online banking and traceable transactions. Cryptocurrency, on the other hand, serves only to threaten China’s desire for control and stability economically as it undermines the creation of the yuan as well as politically since cryptocurrency transactions do not answer to the People’s Bank of China and therefore its government.
by Ke Thie Kiew