As a seasoned researcher with a keen eye for financial trends and a deep understanding of the intricacies of emerging economies, I must admit that Cambodia’s recent move to embrace cryptocurrencies is a fascinating development. My personal journey has taken me through various economic landscapes, and I have seen firsthand how innovation can transform a nation.
After a long time of being cautious due to potential risks associated with cryptocurrencies, the government of Cambodia is now embracing the growing digital economy. On Friday, the central bank of Cambodia (National Bank of Cambodia or NBC) made a significant move by authorizing commercial banks and payment companies to provide services related to Category 1 crypto assets, signaling a major change in policy for the country.
The directive issued on December 26 makes it possible for authorized entities to perform actions involving cryptocurrencies, including exchanging them for traditional currencies, transferring crypto assets, and offering custody services. However, digital currencies without backing such as Bitcoin (BTC) and Ethereum (ETH), along with any other unbacked cryptos, are strictly forbidden under the newly established framework. Here’s a breakdown of their current status:
Step Toward Regulation and Innovation
To provide a clear understanding, category 1 crypto assets, as per NBC’s definition, encompass stable digital currencies that hold a constant worth linked to underlying assets such as USDT ($1.00) and USDC ($1.00). These assets have shown a daily volatility of 0.2%, with market caps at $139.22 billion for USDT and $43.55 billion for USDC. Their daily trading volumes are $33.25 billion and $7.68 billion, respectively. This categorization is aimed at reducing the risks related to volatility and illicit use that have been prevalent in cryptocurrencies like Bitcoin and Ethereum, as stated by the central bank.
According to the latest mandate, financial organizations planning to venture into the cryptocurrency sector will need detailed instructions on how to operate. This directive stipulates that these institutions must first acquire permission from the National Bank Council before participating in any crypto-related operations.
Trusted intermediaries can handle transactions involving cryptocurrencies that have backing, perform account-to-account transfers, and safeguard customers’ digital assets in their custody.
Yet, this regulation clearly forbids financial entities from utilizing clients’ cryptocurrencies for self-serving intentions. This measure is designed to safeguard consumers and discourage any potential abuse.
The action is a component of Cambodia’s efforts to strike a balance between enjoying the advantages of financial progression and maintaining stringent supervision to counteract threats like deception, money laundering, and illicit transactions.
Cambodia’s Historical Stance on Cryptocurrencies
Up until recently, Cambodia has been traditionally wary of digital currencies like cryptocurrencies, prohibiting trades and exchanges in the past given their link to significant risks and market instability.
In the past few days, the nation’s financial authority restricted usage on 16 cryptocurrency exchange websites, which include well-known companies such as Binance, Coinbase, and OKX.
The Telecommunication Regulator of Cambodia (TRC) stated that these firms provided their services to local residents, but they hadn’t secured the necessary licenses from the Securities and Exchange Regulator of Cambodia (SERC) first.
Currently, only two crypto exchanges are fully authorized to operate within the nation.
Currently, commercial banks are being allowed to work with stablecoins, a fact that economist Hong Vanak from the Royal Academy of Cambodia emphasizes is part of a growing global trend. This trend involves the use of cryptocurrencies for transactions, trading, and investments.
Yet, he contended that the non-centralized character of these entities presents difficulties for national economies, notably in aspects like rulemaking, tax collection, and tracing ownership.
Even with reservations, Vanak conceded that financial organizations providing cryptocurrency services might produce income by charging users fees, thus opening up a fresh source of earnings for the industry.
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2024-12-27 19:15