Digital assets banned for payment

Digital assets banned for payment

Regulators fret about financial stability

Representations of virtual cryptocurrencies are seen in this illustration taken on Nov 28, 2021. (Reuters photo)
Representations of virtual cryptocurrencies are seen in this illustration taken on Nov 28, 2021. (Reuters photo)

Regulators plan to prohibit the use of digital assets to pay for goods and services because it could create a risk for financial stability and the economy.

According to a joint statement by the Bank of Thailand, Securities and Exchange Commission (SEC) and the Finance Ministry on Tuesday, they have reviewed the benefits and risks of digital assets and deem it necessary to regulate their usage as a means of payment for goods and services to avert potential impacts on the country's financial stability and economic system.

Charuphan Intararoong, assistant secretary-general for intermediaries and markets at the SEC, said the regulator has been conducting a public hearing regarding the guidelines for using digital assets as a means of payment for goods and services to determine an appropriate framework.

The hearing began on Jan 25 and is scheduled to run until February, after which the regulatory bodies are expected to jointly finalise and announce the regulations, said Ms Charuphan.

According to the SEC paper regarding the hearing on the rules, licensed digital asset operators have expanded their actions to show they are ready to support business sectors and shops in using digital assets as a means of payment.

The rules apply to digital asset exchanges, cryptocurrency and digital token brokers and traders, as well as cryptocurrency and digital token advisers.

The guidelines state these businesses must not solicit or show they are ready to support shops in using digital assets as a means of payment for goods and services, or provide a system to shops to facilitate payment.

The regulated businesses are not allowed to open e-wallets for merchants to receive digital asset payment.

The rules are effective from the announcement date, said the SEC.

Digital asset operators that made agreements with parties on using digital assets to pay for goods and services prior to the date of rule enforcement have 15 days to comply once the rules come into force.

Digital asset business operators have expanded to cover services related to using digital assets as a means of payment for goods and services.

Some have solicited businesses by offering to facilitate merchants and businesses in accepting digital assets as payment for goods and services, such as by setting up digital asset settlement systems, said the statement.

Recognising such risks and implications, regulators will consider exercising power to limit the widespread adoption of digital assets as a means of payment for goods and services, according to the statement.

Further regulatory guidelines will be issued for certain digital assets that are supportive of the financial system and financial innovation that do not pose systemic risks, said the statement.

Feedback from relevant stakeholders and the public will be taken into consideration to determine the appropriate regulatory frameworks, according to the joint statement.

In a separate matter, the Finance Ministry is still undecided on offering a tax exemption for digital asset trading, said Finance Minister Arkhom Termpittayapaisith. He said the government is keen to promote the digital asset sector, but it still requires appropriate governance.

The minister met with representatives of digital asset and fintech businesses on Tuesday to discuss their request for a tax exemption on digital asset trading for 3-5 years. They also discussed the promotion of infrastructure to support the digital asset and fintech sectors.

Local digital asset exchange operators and related businesses have continued to request the tax exemption for cryptocurrency trading, claiming the industry needs more time to generate sustainable growth. Profits earned from cryptocurrency trading, Bitcoin mining and the dividends or interest gained from investment in cryptocurrencies are all subject to a 15% withholding tax.

Prinn Panitchpakdi, adviser to the Thai Digital Asset Association, said the meeting with Mr Arkhom was to inform the government of the sector's views regarding the obstacles and opportunities in the digital financial era. Digital asset businesses could add great value to the Thai economy if they receive state support, he said.

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