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The Thai Securities and Exchange Commission (SEC) and Bank of Thailand (BoT) have outlined new tough measures that will ban payments using crypto-assets from next month.
Thailand has joined jurisdictions such as Turkey in banning the use of crypto-assets as a method of payment.
“The issue of concern to regulators is the risks associated with the widespread use of digital assets to pay for goods and services,” said the SEC and BoT in a joint statement.
According to the statement, the current payment system in Thailand is already highly efficient and, as a result, the use of crypto-assets to pay for goods and services does not add many benefits to people and businesses.
Service providers who already offer this will have 30 days from April 1 to come into compliance with the new ruling, which the regulators say was pushed for by the police in the country.
The regulators first touted the possibility of prohibiting payments in January, stating that they had reviewed the benefits and risks of digital assets and deemed it necessary to regulate their usage as a means of payment for goods and services.
In particular, this was undertaken by the authorities to avert potential impacts on the country's financial stability and economic system.
"The key drivers for the SEC’s ban seems to stem from their concerns around monetary and financial system risks in case of cryptocurrency market collapse or restrictions on certain cryptocurrencies in their main jurisdiction," Musheer Ahmed, founder of Finstep Asia, told VIXIO.
For example, Ahmed suggested that many regulators have expressed concern about monetary policy and systemic risks if private stablecoin issuers are unable to redeem, he pointed out.
Overall, Ahmed felt that the ban would be effective.
"Although it is not possible to 100 percent stop the use of cryptocurrencies, especially for transactions on foreign websites and given users are allowed to hold crypto in Thailand for investment purposes, the regulators can enforce the prohibition effectively as the number of players offering crypto currently is limited," he pointed out.
Secondly, owing to the fact that the regulators can impose strict penalties and legal action on merchants and payment services providers, he said. "Most of the current payment providers do not facilitate crypto and would not want to jeopardise their fiat payment systems by offering crypto payments in defiance of the ban."
Payment Risks
"I think the main reason behind banning crypto payments is the inability of the jurisdiction to regulate it," said Sharvari Patil, a fintech consultant based in India.
For example, she continued, it is challenging to regulate as it is not backed by a government or central bank, and the price can be highly volatile.
In addition, the fact that it is mined globally and decentralised. "This means that it is difficult to find which authority will regulate it."
“If digital assets are widely used to pay for goods and services, this may affect the efficiency of the payment system,” the authorities said in defence of the decision.
As most digital assets are developed from a public, decentralised technology, there are no regulators and no security standards have been set, they pointed out. “If there is a problem, users may not be protected.”
In addition, multiple payment systems can cause fragmentation, as well as being confusing or costly if consumers have to use all of them, the regulators said. “As a result, the overall cost of payment of the country is higher and this has a continual effect on the development of the financial economy.”
The risk of volatility in the value of crypto-assets makes the user's spending or the payee's income highly uncertain, the announcement indicated. “Even some digital asset operators have services that help exchange digital assets into baht before delivering them to merchants, but there may also be hidden costs, such as fees for converting digital assets to prevent volatility that may be collected from users or payees.”
"Until there is global regulation in place, one or the other countries may keep banning cryptos to keep their sovereignty intact," said Patil.
Ahmed, meanwhile, envisaged a split among regulators in Asia on how to treat crypto.
"Some of the markets, especially those with international hubs, such as Hong Kong, Singapore and Dubai, have or are in the process of bringing in regulations to facilitate and regulate crypto payments," he said.
He continued: "On the other side, countries such as China, India and South-East Asian are likely to restrict or ban cryptocurrencies as they see them as a threat to their monetary policy and offering an alternative to their fiat legal tender."
Warning against promoting crypto
In guidance released alongside the announcement, the authorities warned that all types of crypto-asset business operators must not provide services or act in a manner that encourages or promotes the payment of goods and services with crypto-assets, such as advertising, soliciting or presenting itself to be available to pay for goods or services to merchants.
Meanwhile, establishing a system or tool to facilitate the payment of goods and services, and opening a crypto-asset wallet for the purpose of using crypto-assets as a medium for payment of goods and services is also outlawed.
In circumstances where the operator finds that clients are using accounts opened for the trading of crypto-assets for the purpose of paying for goods and services, the business operator must notify the user about the misuse of the account and tell them that this does not match the terms of service.
For customers who do not comply, action must be taken, the authorities said. This includes temporarily suspending the service or even terminating the relationship completely.
In spite of the announcement, the regulators have insisted that they do support digital innovation.
“The BOT and the SEC, as well as other government agencies, see the benefits of various technologies behind digital assets such as blockchain and emphasise and support the use of technology to further innovation and does not block the use of digital assets for investment,” the announcement says.
According to the regulators, this is reflected by the fact that Thailand is the first country in the world to have a law to support crypto-asset firms under the SEC, while the Bank of Thailand was one of the first central banks to develop a central bank digital currency as an infrastructure for further financial innovation.
