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The role of Islamic cryptocurrencies in supporting Malaysia’s economic growth

For centuries, traditional currencies have existed in two forms: physical assets (gold and silver), and fiat currencies (government-controlled paper banknotes and coins). With the advent of cryptocurrencies, this list has expanded. The Muslim world has not been able to stay away from changes in the financial space but has not yet been able to come to a common point of view on what role cryptocurrencies can play in relations between Muslims.

The government of each country forms its own attitude to cryptocurrencies and their regulation. In Muslim countries the laws regulating digital assets are largely based on the norms of Islam and Shariah, therefore the impact of cryptocurrencies on the economy varies. It is believed that the current monetary system uses the wrong type of monetary instrument, which causes a number of problems in the economy. In fact, one of the main problems pointed out by users of cryptocurrencies with government-controlled fiat (paper money) is that this paper money can continue to be printed by the state at little cost. This leads to inflation and weakens the value of the national currency. In 2019, in Malaysia (where more than 60% of the population are followers of Islam), was passed a law according to which cryptocurrencies were equated to securities. Simultaneously with this decision of the authorities, the Ministry of Finance organized a separate body whose sphere of activity would include control over the circulation of cryptocurrencies. The Minister of Finance of Malaysia, Lim Guan Eng said that all instruments and related activities that relate to digital money must comply with current legislation, and rules for conducting ICOs and trading cryptocurrencies on exchanges will also be issued.

Enough time has passed since then to be able to assess how this decision of the government affected the country’s economy. Cryptocurrencies attracted the attention of the Malaysian authorities not just because they saw it as a mechanism for faster and safer transactions. Malaysia is one of the countries with the most developed institute of financial advisors on Islam and Sharia. Malaysia’s national financial institutions are undertaking structured efforts to define the architecture of cryptocurrencies for trading, business and Islamic banking, as well as financial activities.

According to the Statistics Department of Malaysia, already in the period from mid-2019 to the end of 2021, the country’s economy grew by 4.5%. This figure was the highest since 2016. Many economists associate it precisely with the adoption of the law on digital assets and the regulation of companies using cryptocurrencies for settlements within the framework of Islamic banking, which is widespread in this country.

The government of the country pursues a very cautious policy towards cryptocurrencies and carefully monitors how and by whom digital funds are used. In an interview, the Deputy Minister of Finance of Malaysia said that the country’s digital and cryptocurrency payment systems work quickly and safely, meeting all economic needs. The instruments of the updated monetary policy also prove their effectiveness and maintain the stability of the country’s financial market, so there is no urgent need to launch its own digital currency yet.

On January 15, 2020, the Malaysian Financial Supervisory Authority published the regulatory framework for Initial Exchange Offerings (IEO), and also outlawed initial coin offerings (ICOs) in the country. Part of the regulatory guidance requires cryptocurrency exchanges to exercise the necessary due diligence and bear sole responsibility for offering virtual tokens, as they must facilitate the issuance of all tokens. Malaysian cryptocurrency trading platforms must have a paid-up capital of at least 5 million ringgit (1.2 million US dollars), as well as a license of the Digital asset Exchange (DAX) platform operator.

Malaysia is a culturally diverse country with huge economic and political weight in the Asian region. Given the quite loyal attitude to cryptocurrencies and seeing how digital finance helps the state to develop, Muslim entrepreneurs have a duty to exercise prudence to maintain a progressive image. If current trends continue, Malaysia can become one of the leading Islamic countries where blockchain and Islamic crypto currency will create synergy for stable growth and prosperity.

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