Blockchain Research

We have published a few commentaries over the past year noting how central bank digital currency (CBDC) adoption in Southeast Asia is pretty slow. Cambodia is an exception, but its digital fiat currency is not exactly a CBDC in the traditional sense – an important distinction to make. Bakong is probably best described as a blockchain-powered retail payments system managed by the Cambodian central bank that allows interoperability among the different players in the country’s payments landscape.

The Chinese government views cryptocurrency as a serious systemic financial risk and has taken strong measures to minimize its usage in the world’s second largest economy. Though China retains a thriving underground crypto ecosystem, Beijing’s different bans on digital assets ensure that the average Chinese citizen will not be exposed to them.That said, Beijing has not expressed any opposition to blockchain/DLT technology; on the contrary, the Chinese government believes that it can use blockchain for a wide variety of applications, from trade finance to improving supply chain safety.

Taiwan’s government has historically had an amicable relationship with the cryptocurrency industry because it functions for the most part outside of the Taiwanese banking system and has not caused them many problems. Further, Taiwan’s conservative retail investors have generally been less eager than most of their counterparts in East Asia to jump into crypto investing, which has made digital assets a niche market on the island. However, the latest crypto bear market, and especially the collapse of FTX, have highlighted why the hands-off approach may need to be adjusted.

Crypto bear market be darned: Indonesia plans to set up a cryptocurrency exchange later this year ahead of a shift of regulatory powers over digital assets to the Financial Services Authority from the Commodity Futures Trading Regulatory Agency, known as Bappebti. The move is part of a broader financial reform push.

India launched its long-awaited CBDC pilot in early November – wholesale – and early December – retail – with much fanfare. Nine banks are participating in the wholesale pilot and four in the retail pilot, which is focusing on the cities of Mumbai, New Delhi, Bengaluru and Bhubaneswar.

Call it a comeback? That seems to be the message of the Hong Kong authorities as they work to restore the city’s reputation as Asia’s premier financial hub. While some things will never be the same in the erstwhile British crown colony, it does retain significant strengths as a financial bridge to the mainland, and the Greater Bay Area (GBA) in particular. But when it comes to serving as a hub for cryptocurrency, the jury is still out.

It was just a matter of time before Southeast Asia’s largest economy unveiled its roadmap for a central bank digital currency (CBDC) and indeed, Indonesia’s central bank recently published a white paper about its plans for a digital rupiah. Whether Indonesia actually needs a CBDC is a separate matter, and its motivations for launching a digital fiat currency are only now starting to become clear.

The bigger they come, the harder they fall, especially in an industry like crypto that has rapidly become colossal yet still operates largely in the shadows. The abrupt implosion of crypto exchange FTX might be a Lehman moment, or it might be an Enron moment, or it might be something else entirely. It is hard to say at this point.

Hong Kong as Asia’s top crypto hub? Really? That is our reaction to the speculation that the Chinese SAR could beat out Singapore for Asia’s crypto crown that has emerged since Hong Kong officials at Hong Kong Fintech Week announced a public consultation on how retail investors could have a suitable degree of access to digital assets under a new licensing regime. Rules currently limit crypto trades to institutional investors with a portfolio of at least HK$8mn ($1mn). Yet it is hard to see how Hong Kong can chart such a markedly different course on crypto than mainland China.

Cambodia became one of the first countries in the world to launch a central bank digital currency (CBDC) in October 2020. As adoption of Cambodia’s blockchain-based retail CBDC Project Bakong proceeded expeditiously, other Southeast Asian countries with similar financial inclusion needs and openness to digitization of financial services were expected to follow suit.

Yet two years after Bakong’s launch, no other ASEAN country has launched a digital fiat currency. As the hype around CBDCs has cooled, Southeast Asian countries are worrying less about being first movers in this nascent field and more about if a CBDC offers them benefits that justify its costs.

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