BANK Negara Malaysia (BNM) Governor Tan Sri Muhammad Ibrahim was recently quoted in the New Straits Times as saying that guidelines governing cryptocurrencies were expected to be unveiled by the end of the year, which is less than three months from now.
Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of the banking system. It is an emerging financial technology enabled by innovation, and is increasingly popular among Internet users. It challenges financial and regulatory rules on currency and payment systems.
BNM’s statement could not have come at a better time as cryptocurrencies, such as Bitcoin, are increasingly popular in Malaysia. Not only do we see companies and communities accepting Bitcoin, but small businesses, such as a nasi kerabu stall in Kota Baru, Kelantan, were also reported as accepting payment in Bitcoin.
As with any new and disruptive technology-based business phenomenon, cryptocurrency has its pro and cons. Proponents view it as a natural solution for fast-growing electronic commerce through a ubiquitous technology like the Internet. They also argue that cryptocurrencies benefit people who are otherwise denied access to banking services.
While allowing cryptocurrencies may signal our business friendliness to the digital economy, it also triggers risks and uncertainties. The greatest of them is their potential use in crimes, such as money laundering and financing terrorism. There have been instances in other countries where Bitcoin has been used in the Dark Web for illicit transactions. Indeed, the anonymity that comes with the use of cryptocurrency is a cause for concern as it makes it harder to ensure consumer protection.
Given the above, the authorities cannot turn a blind eye to this new and disruptive payment method. Indeed, BNM has given minimal attention to the matter. BNM announced in 2014 that “Bitcoin is not recognised as legal tender in Malaysia” and that “the central bank does not regulate the operations of Bitcoin”. The statement on its website went further, advising the public to be cautious of the risks associated with the usage of digital currency. One wonders whether this means cryptocurrencies are not welcome. We can hope for a better outcome with the long-awaited announcement by the BNM governor recently.
In view of the prospect of having a policy on cryptocurrency, there are few points that need to be taken into consideration.
FIRSTLY, though several countries have either banned or are considering a ban on digital currency, we should take a more positive approach. We should open ourselves to this new technology while trying to manage the risks associated with it.
SECONDLY, the view of experts should be sought on syariah compliance. As Malaysia is home to millions of Muslims and to a prominent global Islamic finance industry, we should see to this question at an early stage. Therefore, clarifications and technical innovations may also be sought to allow a greater market for cryptocurrencies.
THIRDLY, cryptocurrencies are not operating in a vacuum. There are applicable laws and regulations in the digital payment and electronic commerce ecosystem. Our criminal codes, cyber law, personal data protection and consumer protection laws must all be looked at to assure a supportive legal and regulatory environment for cryptocurrencies.
LASTLY, let us remember that policing is not only about law and regulations. The upcoming BNM guideline may have to consider other sources of “policing”. Professor Lawrence Lessig of Harvard Law School has reminded us about the four elements that regulate the Internet: Each of the norm, architecture, market structure and regulations will police cryptocurrencies in Malaysia.
Therefore, a co-regulatory mechanism involving stakeholders (consumers, developers, business communities and the authority) is the best option.
DR SONNY ZULHUDA
Civil Law Department,
Ahmad Ibrahim Kulliyyah of Laws, International Islamic University Malaysia.