No regulation of cryptocurrency, but S'pore will stay alert to risks

Bitcoin's rally and the proliferation of other digital assets is attracting the wary eyes of regulators globally.

Singapore does not plan to regulate cryptocurrencies such as bitcoin, but will remain alert to money laundering and other potential risks stemming from their use, said Monetary Authority of Singapore (MAS) managing director Ravi Menon.

"As of now, I see no basis for wanting to regulate cryptocurrencies," he said in an interview at the bank's headquarters yesterday.

Rather, the central bank's focus is to "look at the activities surrounding the cryptocurrency and asking ourselves what kinds of risks they pose, which risks would require a regulatory response, and then proceed from there", Mr Menon added.

Bitcoin's rally and the proliferation of other digital assets is attracting the wary eyes of regulators globally, though many central banks have still refrained from supervising cryptocurrencies. China and South Korea have banned initial coin offerings (ICOs), while Russian President Vladimir Putin has called for the sector's regulation.

Mr Menon said: "Very few jurisdictions regulate cryptocurrencies per se. Most have taken the approach that the currency itself does not pose the risk that warrants regulation."

However, he said "it is a known fact that cryptocurrencies are quite often abused for illicit financing purposes. And so we do want to have anti-money laundering controls, countering the financing of terrorism controls in place".

"So, those requirements apply to activity around cryptocurrency rather than the cryptocurrency itself," said Mr Menon.

Singapore already requires virtual-currency intermediaries such as exchange operators to comply with requirements to combat money laundering and terrorism financing, the MAS chief noted. "This will be formalised in the coming payment services regulation which we are working on."

If ICOs include the promise of a dividend or other economic benefits, they can resemble regular securities offerings and would therefore be covered by Singapore's Securities and Futures Act, he noted.

Other business models "avoid these security-like features in their digital tokens", he added. "So, we just have to look at them case by case to see which ones we will need to bring into the regulatory ambit, and which ones can stay outside."

Bitcoin prices breached US$6,000 (S$8,179) for the first time last week, a rise of more than 500 per cent since the start of the year. The rally continued even after recent criticism from central bankers and other top financial executives.

Mr Menon said: "Our attitude is let's keep an open mind on it. I think that is one of the areas where there has been excessive hype because people see it merely as an investment vehicle that is going to rise in value, and I think that is a rather misguided approach towards the use of cryptocurrencies."

On the issue of inflation, Mr Menon said that while it is still well below the historical average, policymakers need to be proactive if a stronger economy results in a pickup in price pressures.

Inflation will climb at some point if economic growth continues to strengthen, and under those circumstances, the central bank - like others around the world - needs to be forward-looking, he noted.

"Our track record shows that we are keenly focused on inflation, keeping inflation under control," he said. "And as long as inflation remains benign, the current policy stance has been appropriate."

"Being proactive has been our track record for the last 40 years, it is not going to be different this time around," Mr Menon added.

After easing it three times between January 2015 and April last year, MAS - which uses the exchange rate as its main policy tool rather than interest rates - has stuck to a neutral currency stance in the face of subdued inflation pressure.

In a statement accompanying its last policy decision on Oct 13, MAS did not explicitly reiterate that the stance remains appropriate for an extended period, increasing speculation it would tighten it next year by seeking a slight appreciation in the exchange rate.

Mr Menon said: "The policy stance had been appropriate for an extended period because of the prolonged period of very weak inflation we have seen.

"We are now seeing inflation picking up, but still quite below the normal historical average of about just under 2 per cent. It will be hard to extrapolate from here how long more that extended period will be."

MAS now has a neutral stance of zero appreciation in the currency. It guides the Singapore dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of a currency band. It does not disclose details on the basket, band or pace of appreciation or depreciation. BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on October 26, 2017, with the headline No regulation of cryptocurrency, but S'pore will stay alert to risks. Subscribe