Thailand Set to Ban Use of Digital Assets, South Africa Embraces Them

June 21st, 2022

Following a meeting held on March 3, the Securities and Exchange Commission of Thailand, in consultation with the Bank of Thailand, has announced that new regulations will be issued that will prohibit the use of digital assets to pay for goods or services, starting April 1.

In the announcement, the SEC cited utilizing digital assets to pay for goods or services as a potential threat to the stability of Thailand’s financial system and economy, and added that people and businesses using digital currency could be targets of cybercrimes, while also stating that using digital assets as a medium of exchange increases the chance of money laundering.

Pursuant to the new rules, digital asset operators will only be allowed to use digital assets for investing, while monitoring their clients’ activities and taking appropriate action where necessary. The new rules are comprehensive, and in part read:

“Digital assets operators of all types must not provide services or carry out any action to support or promote the use of digital assets as a means of payment for goods or services. For example, the providers cannot launch advertisements or set up any system or tool to facilitate the use of digital assets as a means of payment. They cannot open digital wallets to use digital assets as means of payment either.”

“In case the operators find clients of wallets or accounts using a digital asset to pay for goods and services, the operators must take action against the clients and must suspend or cancel the services.”

The new rule will be in force starting April 1, and digital assets operators must comply with the rule within 30 days.

Conversely, other countries are embracing digital assets. The U.S. is actively exploring how to utilize digital assets domestically and become a leader internationally, and South Africa is following suit.

Yesterday, on March 22, The Bank for International Settlements (BIS) Innovation Hub and the South African Reserve Bank released the final report on an experimental platform for international settlements using CBDCs (central bank digital currencies).

The prototype project, nicknamed “Project Dunbar”, was developed by the BIS Innovation Hub, the South African Reserve Bank, and the central banks of Australia, Malaysia, and Singapore.

The purpose is to “. . . reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions.” A potential common platform would enable direct cross-border transactions using CBDCs between central banks.

To put things into perspective, domestic payments are made directly between banks on a single national platform. Conversely, cross-border transfers involve multiple corresponding banks from different countries that hold foreign currency accounts with each other, and the transactions are recorded on multiple systems.

This makes international settlements much more complex, time-consuming, and costly. In case Project Dunbar is successful, cross-border transactions with CBDCs may be more similar to domestic transactions. According to Andrew McCormack, head of the BIS Innovation Hub Centre:

“A common platform is the most efficient model for payments connectivity but is also the most challenging to achieve. Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms.”

While the potential is there (and there is no indication that South Africa will move away from the rand), such a large project does not come without challenges, as Rashad Cassim, Deputy Governor of the South African Reserve Bank notes:

“Even though multi-CBDC exploration is at its infancy . . . and a number of areas still require further investigation, it is only through our collective understanding and journeying together that we can meaningfully contribute to the G20 roadmap for enhancing cross-border payments.”

It is apparent that digital assets are rapidly increasing in importance. However, countries are taking different approaches to deal with the developing situation – some are embracing it, while others are trying to minimize potential risks. Ultimately, only time will tell which approach is the correct one.

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