Malaysia Rejects Crypto As Legal Tender, Citing Lack of Money Traits

On Thursday, Malaysia officially rejected the idea that crypto could exhibit characteristics of money.

Addressing Parliament member Nurul Izzah Anwar (PH – Permatang Pauh) in Dewan Rakyat about the government’s role in monitoring and regulating the currency, Malaysia’s Deputy Finance Minister II Yamani Hafez Musa says that crypto is not a suitable method of payment for the country.

Speaking to a widespread discussion on cryptocurrency and their growing use as money, Hafez said:

“Digital assets such as Bitcoin and Ethereum are not suitable to be used as a payment instrument as these assets do not exhibit characteristics of money,” he said.

Continuing, he said that the reasoning is “due to the state of digital assets which is exposed to volatility as a result of speculative investments.”

Bank of Negara isn’t convinced either

When asked about whether Malaysia’s government had any intentions to create a digital currency, given Bank Negara’s involvement in Project Dumbar – an initiative involving cross-border money transfers using blockchain technology.

According to the Minister, Malaysia’s central bank, Bank Negara, isn’t convinced either, as it also hasn’t allowed the use of digital assets for payments.

“The monetary policy tools and existing finances [also] remain effective in maintaining monetary stability and the country’s finances,” he pointed out.

In January, Bank Negara said it was testing the efficiency of a Central Bank Digital Currency (CBDC) and is studying the usefulness of creating and employing a cryptocurrency.

“[We are] actively assessing the value proposition of central bank digital currency (CBDC) to Malaysia,” a bank representative said, adding that “while a decision has not been made to issue CBDC, we have focused our research on CBDC via proof-of-concept and experimentation to enhance our technical and policy capabilities, should the need to issue CBDC arise in the future.”

High risk to cybersecurity attacks

But Malaysia’s Deputy Finance Minister explained that cryptocurrency is a highly volatile asset class, with Bitcoin peaking at $65,000 (RM272,382.50) in April 2021, but plunging 50% the following week because of market pressures.

In addition, cryptocurrency exchanges are prone to attacks from cybercriminals. He cited that between 2011 and 2021, nearly $12 billion (RM50.29bil) had been stolen through hacking and cyberattacks.

“Also, what is important is the huge impact on the environment because the electrical power that is used to process one bitcoin transaction can process 1.2 million visa transactions. In 2020, the bitcoin network used 132 terra-watts per hour which is equivalent to the entire electricity consumption of Argentina,” he said.

New Delhi also rejects crypto as legal tender

Malaysia is not the only country to bar cryptocurrency from becoming a legal tender. Last month, Indian Finance Secretary TV Somanathan said New Delhi would not accept digital assets as a legal tender.

“Crypto will never be a legal tender. Legal tender means, by law, it is accepted in settlement of debts. India will not be making any crypto asset as a legal tender, and only ‘Digital Rupee’ of the Reserve Bank will be a legal tender in India,” Somanathan said. 

However, India’s Parliamentary Commission has been actively discussing how such an asset could be regulated if it were to ever be adopted. So far, only El Salvador has adopted Bitcoin as a legal tender after passing a law elevating the digital currency to national currency status.

While Hafez is critical of crypto, he hasn’t dismissed it entirely, recognizing that it’s certainly an investment class worth exploring, referencing it’s ‘security’ status by Malaysia’s Securities Commission.

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