MAS chief not keen on digital currencies for the public

Mr Ravi Menon said that MAS is concerned over the "speculative dimension" of cryptocurrencies being sold.
Mr Ravi Menon said that MAS is concerned over the "speculative dimension" of cryptocurrencies being sold.

Digital currencies will not be issued to the public for the foreseeable future because the risks are just too high, according to Monetary Authority of Singapore (MAS) managing director Ravi Menon.

Mr Menon told a UBS forum yesterday that while he is not ruling the idea out, he remains sceptical.

"I am not sure that is a good idea... I can't see why you would want to do that because that completely disintermediates the banks," he said.

Mr Menon added that during times of stress, issuing a digital currency could cause a bank run as people rush to withdraw their cash and put it into the virtual money at the central bank instead.

He also noted that MAS is concerned over the "speculative dimension" of the large swathe of cryptocurrencies being sold.

"The use of cryptocurrency as an instrument of investment or, shall I say, speculation - that is not technology. That is like Dutch tulips," he said.

"I do hope that when that fever has gone away, when the crash has happened, it will not undermine the much deeper and more meaningful technologies associated with digital currencies and blockchains."

Mr Menon also addressed the global economy, noting that the configuration of healthy growth, low inflation and easy financial conditions has created a "Goldilocks economy" - one that is chugging along not too hot, not too cold.

Indeed, world gross domestic product is estimated to have grown by 3.8 per cent last year - the strongest pace of expansion since the rebound from the global financial crisis in 2010, he said.

But this Goldilocks economy comes alongside three "bears" of risk that investors should watch, Mr Menon noted.

The "papa bear" of inflation may be missing now given the structural factors of an understated slack in the economy, the impact of globalisation on the pricing power of labour and the downward pressure on wages caused by technology.

But Mr Menon argued that such structural factors may have created a "one-off" effect on prices, in part as the world is facing populist pressures, and as the trend of globalisation has run on considerably over the last two decades.

"Technological change may still have some legs to run and its disinflationary effects may persist for a while longer. But will they be strong enough to offset the short-term inflationary pressures from tightening cyclical conditions?" he asked.

"For investors, inflation is the biggest bear to watch because monetary policy could tighten at a quicker pace than expected by the markets."

He noted that markets are pricing in only about three rate hikes in the United States by the end of 2019, suggesting that it would not take much to unsettle the markets. Equities could be sold off in a hurry as well.

The "mama bear" of protectionism remains a risk, said Mr Menon, who noted that this risk did not materialise sufficiently to threaten the global economy or financial markets last year.

"Let us not take a hibernating bear for a dead one. This is a bear that may not wake up for a very long time, maybe never. But if it does, it could be ferocious," said Mr Menon.

The "baby bear" of financial instability can also introduce risks due to the high leverage that has built up in both the G-7 economies and in emerging Asia, he added.

"The financial stability risks in the US and China warrant close monitoring, simply given the size of their economies and financial markets, not to mention the build-up of leverage," Mr Menon said.

A version of this article appeared in the print edition of The Straits Times on January 16, 2018, with the headline 'MAS chief not keen on digital currencies for the public'. Print Edition | Subscribe