Legally Speaking: Global currencies – the future of payments?

For digital currencies to be considered payment instruments (meaning you can … and order of our financial system, and safeguarding the balance of payments. … Appropriate laws are needed to regulate cryptocurrencies as payment …

PAYPAL recently announced it was granted a first-of-its-kind conditional “Bitlicense” by the New York State Department of Financial Services, allowing them to facilitate the holding and trading of cryptocurrencies (like Bitcoin and Ethereum) on PayPal digital wallets, and their use as a funding source with US merchants. The announcement seemed to signal cryptocurrencies’ growing use-case, prompting an enthusiastic rally in Bitcoin prices.

Malaysia’s legal framework only recognises digital currencies as securities. These must be specifically approved by the Securities Commission (SC) to be legally traded on approved platforms called digital asset exchange operators (Daxo). For Paypal, which deals in “payment instruments”, this poses a significant regulatory hurdle for a similar move here.

Other emerging digital currencies like stablecoins and central bank digital currencies (CBDC) operate on different mechanics. As a value proposition, these newer global currencies promise to decrease payments transaction friction, lower volatility, and increase financial inclusion. But because their characteristics are different, their fit in Malaysia’s regulatory digital currencies framework is unclear. This article briefly explores the different digital currencies and laws that apply.

Malaysia’s legal framework

Bank Negara Malaysia (BNM) and the SC oversee Malaysia’s financial framework.

Digital assets meeting requirements under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“2019 Order”) are regulated as securities, much like shares.

The 2019 Order describes “digital currencies” as digital representations of value recorded on a distributed digital ledger, cryptographically-secured, and functioning as a medium of exchange interchangeable with money, including through the crediting or debiting of an account.

But to be treated as a security, a digital currency must:

► be traded in a place or facility where offers to sell, purchase, or exchange the digital currency are regularly made or accepted (e.g. a trading platform);

► provide a return in any form, from the trading, conversion or redemption of the digital currency or the appreciation in its value; and 0 not be issued or guaranteed by any government body or central bank.

These SC-approved digital currencies are described as securities (e.g. Bitcoin, Ethereum), can be traded on Daxos, but cannot be used to buy a newspaper at the local 7-Eleven.

New global currencies

Stablecoins are a type of cryptocurrency designed to be pegged to external references like cash reserves. They promise low volatility and stable valuations of their reserve asset. They should not trade at more than their underlying asset values, hence value appreciation should not be expected within the meaning of limb (b) above so as to be construed as securities.

CBDCs are blockchain-based digital representations of value issued by governments (e.g. digital Yuan). Whilst their designs are still being finalised, CBDCs may not have decentralised ledgers, and will be issued and guaranteed by governments or central banks. These characteristics (amongst others) are inconsistent with the 2019 Order, reducing the likelihood they will be considered securities, or even digital currencies.

Use as payment instruments

BNM oversees payment instruments and operators of designated payment systems under the Financial Service Act 2013 (FSA). For digital currencies to be considered payment instruments (meaning you can use it to buy a newspaper at 7-Eleven), e.g. electronic money (e-money), it would need to comply with the FSA.

Several legal barriers exist not least because digital currencies are already regulated as securities under Malaysian law. The definition of e-money also requires that ringgit is pre-paid to an issuer (to safely store in a trust account). This may be impractical for operators like Paypal who do not issue digital currencies but merely facilitate their holding and exchange.

Legal reforms would be needed to use digital currencies as payment instruments. Under the Central Bank Act 2009, BNM is responsible for maintaining the stability and order of our financial system, and safeguarding the balance of payments. This Act and the newly minted Currency Act 2020 emphasise that only ringgit is accepted as legal tender in Malaysia. BNM and the SC will need to consider this in any policy discussion on whether to allow digital currencies to be regarded as payment instruments; and whether to adopt new currencies such as stablecoins and CBDCs.


In a globalised world, there are many means by which individuals can transfer value, whether or not legally recognised. There are risks if Malaysians trade or use cryptocurrencies as payment instruments, regardless of regulatory ambiguity. What is clear is that if unregulated currencies stay in the dark, they remain untaxable, and may attract social repercussions (e.g. money laundering). Appropriate laws are needed to regulate cryptocurrencies as payment instruments, and align Malaysia’s framework to address this global phenomenon.

This article was contributed by Emily Cheah of Christopher & Lee Ong.