As a region undergoing rapid economic and technological progression, Southeast Asia (SEA) is on the brink of an unprecedented threshold. On a global scale, the world is in the midst of the Fourth Industrial Revolution, in which digital technologies such as blockchain are playing an increasingly critical role in social and economic development. In SEA, Singapore has emerged as a hotbed for blockchain startups and a global crypto hub.
Nonetheless, other SEA countries have their niches within the blockchain and crypto space. For example, Malaysia with its emphasis on financial technology (Fintech), provides an ideal platform for blockchain-based Fintech products and services. The Philippines, with its high proportion of unbanked citizens and large number of citizens working overseas, holds immense potential for Fintech development, particularly crypto remittances. In terms of sheer size, Indonesia with a population of more than 270 million presents a vast market for blockchain and crypto market players.
SEA as a region has every chance of becoming the global leader in blockchain and cryptocurrency. For those who are interested in further exploring the blockchain and crypto domains in SEA, look for our upcoming series of Blockchain Landscape Reports covering Vietnam, Thailand, Indonesia, the Philippines, and Malaysia. The tantalizing potential of SEA notwithstanding, there are always two sides to the coin, and in this article, we will be exploring the possibilities offered by cryptocurrencies in SEA, while highlighting the possible dangers that lie ahead in the use of this nascent technology.
As the economies of most SEA countries are emerging market economies (EMEs), they generally hold large quantities of US dollar-denominated reserve assets to protect from systemic shocks in the event of global financial instability. Thus, SEA countries are heavily exposed to the US dollar. EMEs, including those in SEA, are ultimately more vulnerable global financial cycles.
If SEA countries are to subscribe to the notion of developing a regional currency to protect themselves from swings of the global economy and geopolitics, the answer may lie in cryptocurrencies. When it comes to the development of regional currencies to substitute national currencies, sovereignty remains problematic. But given the decentralized nature of blockchain, it would be possible for SEA countries to adopt a regional cryptocurrency for the purposes of intra-regional trading, without having to sacrifice their sovereignty. Furthermore, the immutable nature of distributed ledgers is in perfect concordance with the spirit of democracy, as it provides verifiable transparency and accessibility to its users.
As much as cryptocurrencies may serve Southeast Asia in terms of both economic prosperity and regional stability, dangers remain. In its report titled “Closing the Crypto Gap Guidance for Countering North Korean Cryptocurrency Activity in Southeast Asia”, British defense and security think tank Royal United Services Institute (RUSI) highlighted the threat posed by North Korea’s improving cyber capabilities to the cryptocurrency domains of Southeast Asian countries. The authors of the report noted that the increasing use of cryptocurrencies in SEA, coupled with a lack of coordinated regulation in the respective jurisdictions, poses a systemic risk which may be exploited by North Korea. The rogue nation has a propensity of targeting Southeast Asian countries to get around sanctions imposed by the United Nations and the United States.
As a precaution, the authors recommended that Southeast Asian countries carry out risk evaluations of their respective crypto frameworks and properly address any weaknesses. In particular, the authors highlighted the importance of putting in place a coordinated regional regulatory response and boosting law enforcement with regard to the crypto domain.
In line with the notion of using a crypto framework to develop a regional currency in SEA, the proposal for the Association of Southeast Asian Nations (ASEAN) to develop a regional crypto regulatory framework may not be too far-fetched. As for cybersecurity, Southeast Asian countries may leverage existing initiatives such as the ASEAN Cybersecurity Cooperation Strategy to combat the threats to its crypto domain.
As illustrated by the recent endorsement by China’s President Xi Jinping of blockchain, the technology and cryptocurrencies may hold the key to the future. Although SEA has already embarked on its blockchain and crypto journey, it still has a long way to go. With the right approach, supported by an adequate safety net, SEA would be able to effectively use the double-edged sword of blockchain and crypto for the betterment of the region as a whole.
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