Najib is guilty of incompetence, he says: board to be blamed for 1MDB debacle, not me, I don’t know !


Dr M: Najib always assumes people are stupid 

‘Najib assumes M’sians are stupid’

Every bit of money that was borrowed by 1MDB had Najib’s signature, says PM

It is impossible for Datuk Seri Najib Tun Razak not to know of transactions related to 1MDB when his signature was on the documents, says Tun Dr Mahathir Mohamad.

The Prime Minister said he could not believe his predecessor’s claim that he knew nothing about money from the state fund ending up in his personal account.

“Who wants to believe him (that he didn’t know), when he signed (his name)?

“Every bit of money that goes in and out of the first borrowing of RM42bil, all (had) his signature,” said Dr Mahathir.

The amount refers to the total debt accumulated by 1MDB, a fund which was, in fact, founded by Najib in 2009.

“If he doesn’t know, it must be that he doesn’t understand what a signature means,” Dr Mahathir was quoted as saying in an interview with the Malay Mail yesterday.

Dr Mahathir described as “ludicrous” for someone to direct RM2bil to be transferred into his account, while refusing to be informed of the transaction.

“This cannot be. Because I have to sign to use the money.

“To use the money, I have to issue cheques. Najib always assumes that people are stupid,” Dr Mahathir added.

It was previously reported that about US$700mil (RM2bil) was allegedly misappropriated from 1MDB into Najib’s personal account.

In a Reuters report on Wednesday, Najib blamed his advisers and the 1MDB board for keeping the alleged embezzlement information from him.

He said he did not know if hundreds of millions of dollars that moved through his personal account was from 1MDB, and if money from the fund was eventually laundered to acquire assets globally, including yachts, paintings, gems and prime real estate.

To this, Dr Mahathir said the Government had all the information on Najib’s alleged involvement in moving the 1MDB money, and that it knew how much money had gone into Najib’s account.

On Wednesday, the Prime Minister disclosed that the authorities had “an almost perfect case” against Najib for embezzlement, misappropriation of funds and bribery.

1MDB had fallen RM42bil in debt since its inception in 2009, and Dr Mahathir had been at the forefront raising questions on it over the past three years. -The Star

Najib: If I was informed about the troubles the fund was in, I would have acted

He does, though, have explanations for the vast sums of cash, luxury handbags and jewellery recently seized from his homes by the Malaysian authorities.

Speaking to Reuters in his first sit-down interview since his shock May 9 election defeat, Najib said his advisors and the management and board of 1Malaysia Development Berhad (1MDB), had wrongly kept the alleged embezzlement of funds a secret from him.

Newly-elected Prime Minister Tun Dr Mahathir Mohamad told Reuters on Tuesday that the authorities have “an almost perfect case” against Najib on charges of embezzlement, misappropriation and bribery linked to 1MDB.

Najib, in some of his most extensive comments yet on the 1MDB scandal, said he did not know if hundreds of millions of dollars that moved through his personal account was from 1MDB, and if money from the fund was eventually laundered to acquire assets globally, including yachts, paintings, gems and prime real estate.

“I’m not party to the yacht, the paintings…I’ve never seen those paintings whatsoever,” said Najib.

“I was not aware of these purchases. This was done without my knowledge. I would never authorise 1MDB funds to be used for any of these items. I’ve been in government so long, I know what’s right and what’s wrong,” Najib said in the interview held at a luxurious sea-facing private villa in a five-star hotel on Pulau Langkawi.

He blamed 1MDB’s board, saying it was incumbent upon them to tell him if something was wrong.

Relaxing in a black T-shirt and brown pants, Najib said he was enjoying golf, food, and time with his family.

The family booked the villa to celebrate Hari Raya holidays together. Najib’s children, including stepson Riza Aziz, a Hollywood film producer, were with him for the week, his aides told Reuters.

Malaysian investigators looking into 1MDB say they believe that Najib and his wife Datin Seri Rosmah Mansor have amassed vast amounts of wealth and property using funds from the state fund.

Rosmah briefly appeared at the interview but Najib said she would not take questions.

Nearly 300 boxes of designer handbags and dozens of bags filled with cash and jewellery were among the items taken away by police in raids at properties linked to Najib’s family.

Items included Birkin handbags from the luxury goods maker Hermes, each worth up to hundreds of thousands of dollars.

Najib said the public seizure of handbags and other luxury items created a negative perception but most were gifts given to his wife and daughter and had nothing to do with 1MDB.

“Yes these were gifts, particularly with my daughter’s they were tagged, they were actually labelled: when, by whom,” adding that a lot of them were wedding presents.

Najib said his son-in-law Daniyar Nazarbayev, the nephew of Kazakstan president Nursultan Nazarbayev, also gifted many of the handbags to Rosmah.

“People might find it hard to understand, but my son-in-law for example, he gets Birkin from his source, five or six at one go,” he said.

“His family has got some means, so it has nothing to do with 1MDB if it comes from Kazakhstan.”

US prosecutors have alleged that more than US$4.5bil (RM18.02bil) of 1MDB funds were laundered through a complex web of transactions and shell companies. The US Department of Justice (DoJ) has filed several lawsuits to claim about US$1.7bil (RM6.8bil) in assets believed to have been stolen from 1MDB.

Some of the assets sought include a Picasso painting, luxury real estate in South California and New York, shares in a Hollywood production company and a US$265mil (RM1.06bil) yacht, and more than US$200mil (RM800.9mil) worth of jewellery – including a 22-carat pink diamond pendant and necklace.

Najib said this jewellery set was also meant to be a gift for his wife but she never received it.

“And until today we do not know…she says the item is not in her possession,” Najib said.

In the interview, Najib for the first time also spoke at length about Low Taek Jho, a Malaysian financier better known as Jho Low.

US and Malaysian investigators have named Low as a key figure who benefited from 1MDB funds.

Najib said he felt that Low’s connections in the Middle East, particularly with Saudi Arabia and the United Arab Emirates, could be helpful in pulling in more investment to Malaysia from those places.

But he said he had never instructed Low to get involved in 1MDB, and had no control over what he did.

“I didn’t give him instructions, but he volunteered to do certain things, which he thought would help 1MDB. But whatever he did ultimately is the responsibility of the management and board.”

Malaysia is seeking to arrest Low, believed to be residing abroad, for his involvement in the 1MDB scandal.

He described Low and Najib’s stepson Riza as friends but said he was not aware of any dealings involving 1MDB funds in Riza’s Hollywood production company, which produced The Wolf of Wall Street among other movies.

When asked if he was still in touch with Low, Najib said:

“We have cut off communication again. I don’t know where he is.”

Low’s lawyer did not immediately respond to a request for comment.

Najib has consistently denied any wrongdoing in 1MDB. He has said US$681mil (RM2.72bil) transferred into his personal bank account was a donation from Saudi Arabia, and not as US lawsuits have alleged misappropriated funds from 1MDB.

Najib said he had been given assurances from the late Saudi King Abdullah bin Abdulaziz Al Saud that Saudi Arabia would be sending a donation.

“All I knew, I accepted at face value that this is coming from the Saudis, from King Abdullah at his behest, at his instruction,” Najib said. – Reuters

 

Najib: I did not benefit from 1MDB in any way 

 

His say: ‘If anyone is found to be on the wrong side of the law, let the legal process take its course.’

LANGKAWI: Former prime minister Datuk Seri Najib Tun Razak has denied that he benefitted from 1MDB, adding that he believed that the sovereign fund had been created to do “something good for the country”.

“If I knew there was going to be misappropriation of funds, if that was my knowledge, I would have acted,” he said.

To a question if he blamed the 1MDB board for the fund’s troubles, he said:

“No. I am saying as a general principle, if they are in the know that something is not right, then it is incumbent upon them to tell me. It is the fiduciary duty of the board and the management to do the right thing. I expect them to do the right thing and to follow the law.”

He also said that they had no control over what Jho Low – who has been named the main suspect in the 1MDB investigation – did, adding that he could not pass judgment.

“But there are certain things which he may or may not have done. But I am right to say that investigations should proceed and if anyone is found to be on the wrong side of the law, let the legal process take its course.

“No, he was not working on my behalf. All those items he never invoked my name but he did say he was acting for someone else,” he said.

Asked who Low was acting for, Najib said: “You have to ask him that.”

He also said that he had not talked much about the 1MDB allegations because all these things happened out of Malaysia and that there were some “international ramifications” if he were to name certain prominent individuals who might affect the country’s diplomatic relations.

“I would also like to place on record that (his step-son) Riza has done very well – the movies, the box office sales has reached beyond RM3.2bil. So, it is not abusing concern. It is a profitable concern. But source of funding is subject to investigation. I think we will leave it at that.”

On RM2.6bil that was moved into his personal account in 2013, he said with the general election coming then, he had not wanted to get funding from companies as they would expect something in return eventually.

“If I have a source of funding, I could fund the elections and I could also do a lot CSR (corporate social responsibility) work without being obligated to anyone. That was my real intention you see. And I assumed everything was fine,” he said, maintaining that the RM114mil ringgit allegedly seized during investigation into 1MDB to be “genuine donations because the raid happened just two days after the 14th General Election. As president of the party, I had to prepare for the elections, and elections are very expensive affairs.

“Because donations are made in cash in election times. You don’t send cheques during election times, because people want cash. That is when monies are disbursed accordingly.”

On Barisan Nasional’s defeat in the elections, Najib said he saw part of it coming but that he did not expect it to be this catastrophic, blaming it on Opposition’s allegations that changed public opinion.

On the reopening of the Altantuya Shaaribuu murder case, he said the case had already been dealt with and denied that there was any evidence that he had ever met her.

“There are no records, no pictures or witness to say that I even knew her. It was subject to a proper trial and my name didn’t come up during the trial whatsoever.

“I’m on record to have sworn in a mosque in the name of Allah that I had nothing to do with the case.” – The Star

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US Federal Reserve rate rise, Malaysia and regional equity markets in the red


 

Fed’s big balance-sheet unwind could be coming to an early end

NEW YORK: The Federal Reserve’s balance sheet may not have that much further to shrink.

An unexpected rise in overnight interest rates is pulling forward a key debate among US central bankers over how much liquidity they should keep in the financial system. The outcome will determine the ultimate size of the balance sheet, which they are slowly winding down, with key implications for US monetary policy.

One consequence was visible on Wednesday. The Fed raised the target range for its benchmark rate by a quarter point to 1.75% to 2%, but only increased the rate it pays banks on cash held with it overnight to 1.95%. The step was designed to keep the federal funds rate from rising above the target range. Previously, the Fed set the rate of interest on reserves at the top of the target range.

Shrinking the balance sheet effectively constitutes a form of policy tightening by putting upward pressure on long-term borrowing costs, just as expanding it via bond purchases during the financial crisis made financial conditions easier. Since beginning the shrinking process in October, the Fed has trimmed its bond portfolio by around US$150bil to US$4.3 trillion, while remaining vague on how small it could become.

This reticence is partly because the Fed doesn’t know how much cash banks will want to hold at the central bank, which they need to do in order to satisfy post-crisis regulatory requirements.

Officials have said that, as they drain cash from the system by shrinking the balance sheet, a rise in the federal funds rate within their target range would be an important sign that liquidity is becoming scarce.

Now that the benchmark rate is rising, there is some skepticism. The increase appears to be mainly driven by another factor: the US Treasury ramped up issuance of short-term US government bills, which drove up yields on those and other competing assets, including in the overnight market.

“We are looking carefully at that, and the truth is, we don’t know with any precision,” Fed chairman Jerome Powell told reporters on Wednesday when asked about the increase. “Really, no one does. You can’t run experiments with one effect and not the other.”

“We’re just going to have to be watching and learning. And, frankly, we don’t have to know today,” he added.

But many also see increasingly scarce cash balances as at least a partial explanation for the upward drift of the funds rate, and as a result, several analysts are pulling forward their estimates of when the balance sheet shrinkage will end.

Mark Cabana, a Bank of America rates strategist, said in a report published June 5 that Fed officials may stop draining liquidity from the system in late 2019 or early 2020, leaving US$1 trillion of cash on bank balance sheets. That compares with an average of around US$2.1 trillion held in reserves at the Fed so far this year.

Cabana, who from 2007 to 2015 worked in the New York Fed’s markets group responsible for managing the balance sheet, even sees a risk that the unwind ends this year.

One reason why people may have underestimated bank demand for cash to meet the new rules is that Fed supervisors have been quietly telling banks they need more of it, according to William Nelson, chief economist at The Clearing House Association, a banking industry group.

The requirement, known as the Liquidity Coverage Ratio, says banks must hold a certain percentage of their assets either in the form of cash deposited at the Fed or in US Treasury securities, to ensure they have enough liquidity to deal with deposit outflows.

The Fed flooded the banking system with reserves as a byproduct of its crisis-era bond-buying programs, known as quantitative easing, to stimulate the economy. The money it paid investors to buy their bonds was deposited in banks, which the banks in turn hold as cash in reserve accounts at the Fed.

In theory, the unwind of the bond portfolio, which involves the reverse swap of assets between the Fed and investors, shouldn’t affect the total amount of Treasuries and reserves available to meet the requirement. The Fed destroys reserves by unwinding the portfolio, but releases an equivalent amount of Treasuries to the market in the process.

But if Fed supervisors are telling banks to prioritise reserves, that logic no longer applies. Nelson asked Randal Quarles, the Fed’s vice-chairman for supervision, if this was the Fed’s new policy. Quarles, who was taking part in a May 4 conference at Stanford University, said he knew that message had been communicated and is “being rethought”.

If Fed officials do opt for a bigger balance sheet and decide to continue telling banks to prioritise cash over Treasuries, it may mean lower long-term interest rates, according to Seth Carpenter, the New York-based chief US economist at UBS Securities.

“If reserves are scarce right now, and if the Fed does stop unwinding its balance sheet, the market is going to react to that, a lot,” said Carpenter, a former Fed economist. “Everyone anticipates a certain amount of extra Treasury supply coming to the market, and this would tell people, ‘Nope, it’s going to be less than you thought’.” — Bloomberg

Malaysia and regional equity markets in the red

 

In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow
stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.

PETALING JAYA: It was a sea of red for equity markets across the region after the Federal Reserve raised interest rates by a quarter percentage point to a range of 1.75% to 2% on Wednesday, and funds continued to move their money back to the US. This is the second time the Fed has raised interest rates this year.

In general, markets weren’t down by much, probably because the rate hike had mostly been anticipated. Furthermore for Asia, the withdrawal of funds has been taking place over the last 11 weeks, hence, the pace of selling was slowing.

The Nikkei 225 was down 0.99% to 22,738, the Hang Seng Index was down 0.93% to 30,440, the Shanghai Composite Index was down 0.08% to 3,047.34 while the Singapore Straits Times Index was down 1.05% to 3,356.73.

In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.

Meanwhile, the Fed is nine months into its plan to shrink its balance sheet which consists some US$4.5 trillion of bonds. The Fed has begun unwinding its balance sheet slowly by selling off US$10bil in assets a month. Eventually, it plans to increase sales to US$50bil per month.

With the economy of the United States showing it was strong enough to grow with higher borrowing costs, the Federal Reserve raised interest rates on Wednesday and signalled that two additional increases would be made this year.

Fed chairman Jerome H. Powell in a news conference on Wednesday said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity.

Rate hikes basically mean higher borrowing costs for cars, home mortgages and credit cards over the years to come.

Wednesday’s rate increase was the second this year and the seventh since the end of the Great Recession and brings the Fed’s benchmark rate to a range of 1.75% to 2%. The last time the rate reached 2% was in late 2008, when the economy was contracting.

“With a slightly more aggressive plan to tighten monetary policy this year than had previously been projected by the Fed, it will narrow our closely watched gap between the yield rates of two-year and 10-year Treasury notes, which has recently been one of a strong predictor of recessions,” said Anthony Dass, chief economist in AmBank.

Dass expects the policy rate to normalise at 2.75% to 3%.

“Thus, we should potentially see the yield curve invert in the first half of 2019,” he said.

So what does higher interest rates mean for emerging markets?

It means a flight of capital back to the US, and many Asian countries will be forced to increase interest rates to defend their respective currencies.

Certainly, capital has been exiting emerging market economies. Data from the Institute of International Finance for May showed that emerging markets experienced a combined US$12.3bil of outflows from bonds and stocks last month.

With that sort of global capital outflow, countries such as India, Indonesia, the Philippines and Turkey, have hiked their domestic rates recently.

Data from Lipper, a unit of Thomson Reuters, shows that for the week ending June 6, US-based money market funds saw inflows of nearly US$34.9bil.

It makes sense for investors to be drawn to the US, where the economy is increasingly solid, coupled with higher yields and lower perceived risks.

Hong Kong for example is fighting an intense battle to fend off currency traders. Since April, Hong Kong has spent at least US$9bil defending its peg to the US dollar. Judging by the fact that two more rate hikes are on the way this year, more ammunition is going to be needed.

Hong Kong has the world’s largest per capita foreign exchange reserves – US$434bil more in firepower.

By right, the Hong Kong dollar should be surging. Nonetheless, the currency is sliding because of a massive “carry trade.”

Investors are borrowing cheaply in Hong Kong to buy higher-yielding assets in the US, where 10-year Treasury yields are near 3%.

From a contrarian’s perspective, global funds are now massively under-weighted Asia.

With Asian markets currently trading at 12.3 times forward price earnings ratio, this is a reasonable valuation at this matured stage of the market.

By Tee Lin Say StarBiz

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From Industrial 4.0 to Finance 4.0


 

MOST people are somewhat aware about the Fourth Industrial Revolution.

The first industrial revolution occurred with the rise of steam power and manufacturing using iron and steel. The second revolution started with the assembly line which allowed specialisation of skills, represented by the Ford motor assembly line at the turn of the 20th century.

The third industrial revolution came with Japanese quality controls and use of telecommunication technology.

The Fourth Industrial Revolution, or first called by the Europeans Industry 4.0, is all about the use of artificial intelligence, robotics, genomics and process, creative design and high speed computing capability to revolutionise production, distribution and consumption. Finance is a derivative of the real economy – its purpose is to serve real production. Early finance was all about the finance of trade and governments to engage in war.
It is no coincidence that the first central banks (Sweden and England) were established in the 17th century at the start of the First Industrial Revolution. Industrialisation became much more sophisticated as Finance 2.0 brought the rise of credit and equity markets in the 18th and 19th centuries. Industrialisation and colonisation came about at the same time as the globalisation of banks, stocks and bond markets.

Again, with the invention of first the fax machine, then Internet that speeded up information storage and transmission in the 1980s, finance and industry took a quantum leap into the age of information technology. Finance 3.0 was the age of financial derivatives, in which very complex (and highly leveraged) derivatives became so opaque that investors and regulators realised they became what Warren Buffett called “weapons of mass destruction”. Finance 3.0 stalled in 2007 with the Global Financial Crisis and was only propped up with massive central bank intervention in terms of unconventional monetary policy with historically unprecedented interest rates.

We are now on the verge of Finance 4.0 and it may be useful to explore what it really means.

The common definition of Industry 4.0 is the rise of the Internet of Things, in which cloud computing, artificial intelligence and global connectivity means that cyber-physical systems can interact with each other to produce, distribute and trade across the world in a massively distributed system of production.

But what does Finance 4.0 really mean?

What truly differentiates Finance 4.0 from the earlier version is the arrival of Blockchain or distributed ledger technology. The best way to think about the difference is the architecture of the two different systems.

Finance 3.0 and earlier versions were all about a top-down or hierarchical ledger system, like a pyramid, in which trade and settlements between two parties are settled across a higher ledger.

A simple example is payment from Joe in bank A to Jim in bank B is finally settled across the books of the central bank in local currency. But in international trade and payments, the final settlements (at least more than 60%) are settled in US dollar finally across the ledgers of the Federal Reserve bank system.

Finance 3.0 was not perfect and those who wanted to avoid regulation, taxation or any official oversight basically moved trading and transactions off-balance sheet and also off-shore. This was the “shadow banking” system that financial regulators and central banks conveniently blamed on their failure to see or stop the last global financial crisis.

Although technically the shadow banking system is the non-bank financial system, which would include bond, stock and commodity markets, the bulk of illegal, illicit transactions traditionally was done in cash.

Welcome to the technical innovation called cyber-currencies, which was made possible for peer-to-peer (P2P) transactions across a distributed ledger system (commonly known as blockchain). In architectural terms, this is a bottom-up system which technically can avoid any official oversight. Indeed, cyber-currencies or tokens were invented precisely because the users do not trust the official system.

As the populist philosopher Stephen Bannon said, “central banks are in the business of debasing the currency”. Hence, those who want to avoid the debasement of their savings prefer to deal with either cash or cyber-tokens like bitcoin (pic).

What is happening in the rapidly evolving Finance 4.0 is that as the world moves from a unipolar order to a multi-polar world in which other reserve currencies also contend for trade and store of value, the top-down architecture is fusing (or merging) with a bottom-up architecture in which trade, transactions and stores of value are shifting towards the P2P shadow system.

Why this is taking place is not hard to understand. Post-global financial crisis, the amount of financial regulations have tripled in terms of number of rules and complexity on what the official sector can regulate, which is mostly the banking system. It is therefore not surprising that all the innovation, talent and money are moving to outside the banking system into the asset management industry, which is much more lightly regulated.

No talented banker, however dedicated to the values of banking probity, can resist the temptations of working in asset management, away from the heavily regulated environment where he or she is 24×7 under regulatory internal and external oversight.

Another reason why the cyber-P2P business is flourishing is because the official sector is worried that further regulation would hinder innovation. But those who want to increase the complexity of regulation must remember that for every 50 foot wall, someone will invent a 51 foot ladder.

So competition in the 21st century has already moved from the physical and financial space into cyber-space.

If there is one thing I learnt as a former regulator, it is that if the banks are behind the curve in terms of technology, the regulators are even further behind, since they learn mostly from those whom they regulate. But if financial regulators deal with financial innovation through “regulatory sandboxes” where they allow their regulated banks to experiment in sandboxes, they are treating their regulated institutions as kids in an adult game of ruthless technology.

Time for the official sector to make their stand clear or else Finance 4.0 promises to be very different from the orderly world that they are used to imaging. Nothing says this clearer than a recent survey by the Chartered Financial Analyst Institute, which showed that 54% of institutional investors surveyed and 38% of retail believe that a financial crisis in the next one-three years is likely or very likely.

You have been warned.

– Tan Sri Andrew Sheng writes on global issues from an Asian perspective.

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Malaysia’s RM1.09 trillion debt, 80.3% of GDP demystified


Analysts say new government needs to quickly introduce measures to reduce the country’s liabilities

ASSUMING the government repays its debt by RM1mil a day, it would take Malaysia 2,979 years to pay off its debts.

Malaysia’s new Prime Minister Tun Dr Mahathir Mohamad revealed on May 21 that the country’s debt level has breached the RM1 trillion mark during his first address to civil servants.

The statement, which was nothing less than alarming, has since raised concerns among Malaysians on the country’s fiscal sustainability. Bursa Malaysia was hammered for four consecutive days, as investors frantically sold off their stakes.

The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21% to 1,804.25 points.

Total gains made by the index this year were all wiped out in just four days following Dr Mahathir’s announcement.

The ringgit, which has weakened since early April, continues to decline as concerns on public debt loom.

Big impact: The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21 to 1,804.25 points.
An economist tells StarBizWeek that Dr Mahathir’s public announcement on the high debt figure is “not helping”, as anxiety intensifies among Malaysians and in the market.

For context, Malaysia’s real gross domestic product (GDP), an indicator of the size of economy, was RM1.35 trillion as at end-2017 – close to the said RM1 trillion debt amount.

Meanwhile, the federal government’s revenue this year is projected at RM239.9bil as per Budget 2018.

Several critics, including Umno Youth deputy chief Khairul Azwan Harun, claim that Dr Mahathir’s statement on the federal government debt was exaggerated and far-fetched.

AmBank Group chief economist Anthony Dass says that although the current scenario shows some signs of similarities to the 1997/98 Asian Financial Crisis, he would not conclude that the current fiscal condition is somewhat similar to the downturn 20 years ago.

At a glance, the “RM1 trillion debt” remark stands in sharp contrast to Bank Negara’s debt tally of RM686.8bil as at end-2017, putting the federal government’s debt-to-GDP ratio at 50.8% – lower than the 55% self-imposed debt limit.

Dr Mahathir refutes this, saying that the national debt-to-GDP ratio has shot up to 65.4%. A day after his announcement, Finance Minister Lim Guan Eng put the ratio at 80.3% of GDP, or about RM1.09 trillion in debt as at end-2017.

Why is there such an obvious difference in the debt amount now that a new government is in place?

Here is where “creative accounting” comes into play.

The lower official debt figures released under the previous Barisan Nasional government had excluded the contingent liabilities and several other major “hidden” debts from the direct liabilities, which amounted to RM686.8bil as at end-2017.

Contingent liabilities, which were released separately prior to this, basically refer to government-guaranteed debt and do not appear on the country’s balance sheet. Examples of contingent liabilities are the loans under the National Higher Education Fund Corp (PTPTN) and certain debt of the controversial 1Malaysia Development Bhd (1MDB).

As at end-2017, Malaysia’s contingent liabilities stood at RM238bil.

Funding for several government mega-projects such as the mass rapid transit (MRT) projects was also categorised as contingent liabilities. The MRT lines were funded by DanaInfra Nasional Bhd, the government’s special funding vehicle for infrastructure projects.

DanaInfra raises money from the market through sukuk, which are, in turn, guaranteed by the government. The guaranteed amount is classified as a contingent liability.

In the event of less-than-expected revenue collection from the MRT lines moving forward, the government will have to intervene to repay the sukuk holders.

The current ruling government believes that RM199.1bil out of the RM238bil contingent liabilities deserves attention to ensure proper debt repayment.

The 1MDB alone comes with an estimated contingent liability of RM38bil.

High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters
High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters 

On the remaining government guarantees, the Finance Ministry says they have been provided by “entities which are able to service their debts such as Khazanah Nasional Bhd, Tenaga Nasional Bhd and MIDF”.

Apart from contingent liabilities, there are several major “hidden” debts, which do not fall under both direct liabilities and contingent liabilities.

An economist with a leading investment bank in Malaysia calls the debts “off-off-balance sheet” government debt.

These are the future commitments of the federal government to make lease payments for public-private partnership projects such as schools, roads and hospitals.

Examples of such debt would include the debt of Pembinaan PFI Sdn Bhd, a company owned by the Finance Ministry. Pembinaan PFI was established in 2006 under the previous Tun Abdullah Ahmad Badawi administration to source financing to undertake government construction projects.

According to its latest available financial statement for 2014, Pembinaan PFI held a total debt of RM28.75bil.

Interestingly, at end-2012, the company’s debt was the third highest among all government-owned entities, just behind Petronas (RM152bil) and Khazanah Nasional (RM69bil).

With no independently generated revenue, the interest payments on Pembinaan PFI’s debts would eventually come from the federal government’s coffers.

The Finance Ministry puts the debt under this third category at RM201.4bil.

All together, Malaysia’s debt and liabilities are said to amount to a total of RM1.09 trillion.

Actually, for those in the loop, the different debt categories and total liabilities are not something new.

Lawmakers from Pakatan Harapan, particularly current Bangi MP Ong Kian Ming, have alerted the authorities about the debt figures over that past few years.

Ong is also currently the special officer to the Finance Minister. The layman might ask, what was the former government’s relevance of classifying these debts into separate off-balance sheet items?

The motive is to make sure the national balance sheet looks healthy and lean.

Economists’ take

Many have questioned the new government’s move to lump contingent liabilities and debt obligations with the direct liabilities. It should be noted that as per the standard procedure of credit rating agencies, only the direct liabilities are taken into the calculation of the debt-to-GDP ratio.

In a StarBiz report this year, Moody’s Investors Service sovereign risk group assistant vice-president Anushka Shah said that by carving out certain expenditures off its budget, the government would be able to optimise its expenditure profile and minimise the associated impacts from its spending.

However, she pointed out that Malaysia’s federal government debt burden remains elevated at 51%, relatively higher than the median of other A-rated sovereign states at 41%.

On the country’s contingent liabilities, Anushka described them as “low-risk” at the current level, and added that the government has been prudent and careful in managing the guaranteed debts.

“We find that the government has adopted rigorous selection criteria when it grants the guarantees to the respective entities.

“The companies which have received guarantees from the government are relatively healthy and have strong balance sheet positions,” she said.

Ever since Dr Mahathir shocked the market with the “RM1 trillion debt” remark, the focus among Malaysians has largely centred on the nominal value of the debt.

A greater emphasis should instead be given on “debt sustainability”, which basically refers to the growth of debt against the growth of the economy.

Economists who spoke to StarBizWeek have mixed opinions on the level of seriousness of Malaysia’s public debt problem.

Suhaimi: Malaysia’s debt has risen faster than economic growth.
Suhaimi: Malaysia’s debt has risen faster

than economic growth.

According to Maybank group chief economist Suhaimi Ilias, Malaysia’s debt has risen faster than economic growth over the last 10 years.
“In the past decade, officially published government debt and government-guaranteed debt have risen by 10% and 14.5% per annum, respectively, faster than the nominal GDP growth of 7% per annum, which raises valid sustainability risk.“On the government’s debt service costs relative to the operating expenditure, the ratio was 12.7% as at end-2017 and based on Budget 2018 is projected to rise to 13.2%. It has been rising steadily from 9.5% in 2012.

“There is a 15% cap on this under the administrative fiscal rule, while the 11th Malaysia Plan target is to lower the ratio to 9.8% in 2020. The government is looking at the debt issue from this sustainability perspective in our opinion,” he says.

 

Lee: Malaysia’s rising public debt level warrants close monitoring.
Lee: Malaysia’s rising public debt level

warrants close monitoring.

Meanwhile, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says that various indicators of debt burden suggest that Malaysia’s rising public debt level warrants close monitoring to contain the long-term risks of fiscal and debt sustainability.

“High levels of government debt over a sustained period will have economic and financial ramifications over the longer term. Rising public debt could crowd out private capital formation and, therefore, productivity growth.

“This occurs through the competition for domestic liquidity, higher interest rates, a shifting of resources away from the private sector or investment in low-impact projects. This situation is made worse if the government wastes borrowed money on unnecessary projects,” he tells StarBizWeek.

In contrast to Suhaimi and Lee, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain points out that Malaysia’s debt sustainability scenario is yet to be a cause for concern.

 

Manokaran: Debt sustainability scenario is yet to be a cause for concern.
Manokaran: Debt sustainability scenario is

yet to be a cause for concern.

This is because debt repayments are made on an annual basis as opposed to a colossal one-off payment of RM1 trillion.

“Malaysia’s economic growth of above 5% is sufficient to cover government debt. As long as the economy is growing while the government is able to service the debt charges, it is not really that alarming.

“Even in the United States, the government debt-to-GDP level exceeds 100% at US$21 trillion against the real GDP of US$18.57 trillion,” he says.

Manokaran adds that while total government debt has risen over the years, Malaysia’s annual debt growth rate has been growing slower in recent years.

Deleveraging Malaysia

The government must now move fast to introduce measures to reduce and manage the country’s debt levels. This is highly crucial in assuring creditors and investors that the country’s fiscal health remains uncompromised.

Given the fact that the world is currently at the tail-end of the 10-year economic cycle, it is timely for the government to focus on its ability to fulfil its debt obligations.

In the event of an economic turmoil, a heavily-indebted country would be adversely affected.

Lim has emphasised the federal government’s commitment to honour all of the country’s debts.

“This new government puts the interest of the people first, and hence, it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date,” he said in a statement earlier.

Economists believe that the government must strictly embark on reforming the national expenditure in carrying out debt consolidation.

This includes cutting down on unnecessary expenditure, plugging leakages in the federal government’s finances and containing public-sector wage bills.

Lee has recommended an overhaul the current pension system, considering the unsustainable current trend.

“On revenue reform, the design of tax policy should be fair and equitable in order to be sustainable.

“The push for a wide and investment-friendly reform to boost potential growth should be expedited, as strong investment and economic growth has a huge effect on enhancing revenue growth and reducing public debt.

“On budget planning and development, an oversight body needs to be set up to ensure better fiscal rules, budgetary processes and closer fiscal monitoring to ensure fiscal discipline,” says Lee.

Manokaran says the new government should consider expenditure cuts through the privatisation and reformation of the numerous government-linked corporations, as well as the reduction in size and budget allocation of the Prime Minister’s Office.

On the national mega-infrastructure projects, Manokaran and Suhaimi say that the renegotiation and review of such projects will be vital in managing future debt growth.

Time will tell whether the government can live up to its promise of reducing the public debt dilemma. Pakatan must now balance its “populist” electoral promises and stellar fiscal management policies.

As for now, the government deserves to be complimented for calling a spade a spade, acknowledging the problem at hand.

By ganeshwaran kana The Star

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RM7bil to bail out 1MDB, CEO Arul Kanda utterly dishonest & untrustworthy said Finance Minister


PUTRAJAYA: On top of paying RM6.98bil to bail out 1Malaysia Development Bhd (1MDB), the Government is now facing the prospect of forking out an additional RM953mil to service the company’s debts by November.

“I have been informed that besides the RM142.75mil due at the end of this month, another RM810.21mil worth of interest is due between the months of September and November in 2018,” Finance Minister Lim Guan Eng told reporters after being briefed by ministry officers.

Lim, who was shocked at the revelation, added that the ministry had been bailing out 1MDB by servicing its debts since April 2017, which included payments for International Petroleum Investment Corp’s (IPIC) settlement agreement amounting to RM5.05bil.

“This confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that hit had paid via ‘successful rationalisation exercise’.

“It has been the ministry that has bailed out 1MDB,” he said.

He also said the previous government had conducted an exercise of deception with regard to 1MDB and even misrepresented the financial situation to Parliament.

Lim said 1MDB’s chief executive officer Arul Kanda Kandasamy, and directors Datuk Kamal Mohd Ali and Datuk Norazman Ayob will be grilled to determine the company’s state of affairs and its ability to service its debts.

He said officers from the ministry would conduct a detailed study on 1MDB’s debts and liabilities aimed at resolving the “crisis created by the scandal”.

“We will also submit our findings to the 1MDB task force formed by the Prime Minister,” Lim said.

Asked what was the full extent of 1MDB’s debts and liabilities, Lim said this would only be known with full access to files and accounts which had been previously barred or blocked to auditors.

He added 1MDB had contributed to the nation’s debts. – The Star

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Malaysia needs structural reforms says global investor


Middle-income trap, brain drain and high public service spending among Malaysia’s risks

Cheah(pic) thinks the local stock market could go up by between 5% to 10% this year while the ringgit, which has mostly been on an uptrend in recent times, is “still down quite a lot”, against the US dollar.

 

 
Middle-income trap, brain drain and high public service spending among Malaysia’s risks

KUALA LUMPUR: A renowned global investor has called for structural reforms in Malaysia, saying that the country faces “very real” structural issues.

Penang-born Datuk Seri Cheah Cheng Hye (pic) who left Malaysia decades ago counts the middle-income trap, brain drain and high public service spending as current risks to the country.

Based in Hong Kong as the chairman and co-chief investment officer of fund and asset management group Value Partners Group for over two decades now, Cheah who helps manage over US$16bil in funds, however concedes that Malaysia remains a country with huge potential and opportunities.

“I don’t think we should underestimate the importance and attractiveness of Malaysia but what I am saying is that if we don’t want to be stuck forever (being) a so-called middle-income country, we need structural reforms,” he told StarBiz in a recent interview.

“Or maybe… we do want to be stuck because it is a comfortable position and because then, we can make a lot of compromises.”

“ (If that’s the case), we should be frank and say it, don’t pretend that we want to be an advanced country because that requires certain sacrifices.”

“The reality is that we are getting less and less competitive, we ranked number 23 in the latest Global Competitiveness report ,behind France and Australia which are developed countries. (Number 23) is not good enough for a developing country,” said Cheah, who recently made it to the top 40 richest Malaysians list.

Emphasising the issue of brain drain, Cheah, a former financial journalist and equities analyst said Malaysia could perhaps emulate India in this area where the concept of an Indian national overseas card has been introduced.

“I am told there are more than one million Malaysians overseas – (people like) entrepreneurs, these are exactly the type of people we want to stay here but they are not.

“We could introduce a new type of card called the Malaysian national overseas card for Malaysians who have chosen to leave the country and become citizens elsewhere.”

This card will give these Malaysian-born individuals no voting rights but will allow them to come back to work and invest here like everyone else, he said.

Cheah said this could help re-attract talent and there will be no political price to pay, because these people cannot vote here nor transfer this card to their children who would likely be foreigners.

“Some may actually come back, because it is not always greener on the other side… but you must make it easy enough (for them to come back).”

Cheah also pointed out that the amount Malaysia spends on public service is “very high” by any standards.

“Quoting from memory, about 30% of government spending is on civil service salaries and 16.5% of all employment in this country comprise civil servant jobs.

“No matter how you explain it, this is abnormally high ; something that I have learnt from my stay in Hong Kong is, keep the government as small as possible.”

He said although the civil service segment here appears to be bloated, it would be “unrealistic” to fire civil servants.

“Instead, maybe we can consider freezing and redeploying resources.

“Like any corporation, if you have too high a headcount, you freeze hiring and you redeploy people to where they are needed,” Cheah said.

Separately, Cheah, whose investments are mostly China-centric believes that Myanmar could be the next big thing.

“Nowadays, I like Myanmar because it is still cheap.

“It has about 55 million people but its gross domestic product (GDP) is only about US$65bil, Malaysia’s GDP is probably about US$320bil.

“Myanmar has enormous potential, at last they are emerging , gradually reconnecting with the world, they have (a lot of ) raw materials and are in a good position as one of the significant Belt and Road countries, China will go out of its way to invest there.”

Cheah said he would like to set up a Myanmar fund to invest in the country and is in the process of studying this possibility.

Among markets in Asia, Malaysia to Cheah, is “moderately attractive”.

He said consumer sentiment here was finally improving after it took a beating largely due to the implementation of the Goods and Services Tax (GST) back in 2015 plus there are some “interesting corporate restructuring taking place.”

Also, it is General Election year which going by history, tends to send the market higher, he said.

“I think there are good arguments why the Malaysian market is good this year but the arguments are not strong enough to result in a very strong market – and there’s also a global environment that’s not as good as last year.”

“I think the US administration is now focusing on globalisation and world trade and it seems to be moving in the direction of conflict with China over trade.

“If there is a China-US trade war, Malaysia will suffer collateral damage because we are a medium-sized player in a global supply chain, so it will be very disruptive,” Cheah said.

Upside for the Malaysian market could also be limited this year, he said, because its current valuation is relatively high at over 16 times price to earnings.

Cheah thinks the local stock market could go up by between 5% to 10% this year while the ringgit, which has mostly been on an uptrend in recent times, is “still down quite a lot”, against the US dollar.

The local unit appreciated by 8.6% against the dollar last year after losing some 4.5%, a year earlier.

At last look, it was traded at 3.9395 against the greenback.

By Yvonne Tan The Staronline
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World Bank: Malaysia needs structural reforms – Business News

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Bitcoin: Utter pipedream


No intrinsic value: Unlike enterprises, bitcoin has no business, no intrinsic value, no cash flows and no balance sheet. — AFP

I JUST returned from a meeting of the Asian Shadow Financial Regulatory Committee in Bangkok.

The group comprises Asian academic experts on economics and finance. Their role is to monitor the state of the world economy and the workings of its financial markets in the light of existing and prospective policies; and draw lessons and give advice on vital public policy issues of current interest to regulators and market practitioners to make the world a better place.

The group comprises 23 professors from 14 countries, coming from a diverse group of universities and think-tanks, including the universities of Sydney and Monash, and of Fudan, Hong Kong and Sun-Yat-Sen in China, Universitas Indonesia, universities of Tokyo and Hitotsubashi, Yonsei and Korea universities, Sunway University, Massey University in New Zealand, University of the Philippines, Singapore Management University, National Taiwan University, Chulalongkorn University and NIDA Business School, University of Hawaii and University of California at Davis, University of Vietnam, and Tilburg University in the Netherlands.

They examined key issues surrounding the theme: “Cryptocurrencies: Quo Vadis?” focusing on the role and activities of the flavour of the month, bitcoin. At the end of it all, they issued the following statement:

“Cryptocurrencies in general, and bitcoin, in particular, have been receiving considerable press of late, driven mainly by wide swings in value in the cryptocurrency exchanges. There are now in excess of 2,500 products considered to be cryptocurrencies and in the last three weeks alone their combined market value has plummeted from US$830bil to US$545bil as of today, of which US$215bil is attributed to bitcoin and bitcoin cash.

To keep this in perspective, however, Apple Inc has a market value of US$880bil as of today. Market value measures the equity value of a business – or what investors are willing to pay for its future profits. Unlike enterprises, however, bitcoin has no business, no intrinsic value, no cash flows, no profit and loss statement, and no balance sheet. It is a speculative instrument.

Cryptocurrencies, including bitcoin, are not considered currency today because they are not a universal means of payment, nor a stable store of value, nor a reliable unit of account. Buyers purchase on the basis that these cryptocurrencies would rise in value. While market value has been the main focus of the current interest, the more important issues are around the role of cryptocurrencies both as financial assets, and the role they can play in transaction settlements, and their implications, if any, on financial stability.

While there is much interest in cryptocurrencies, especially bitcoin, the volume of transactions remains very small currently. For example, total US dollars (cash) in circulation amount to US$1.6 trillion as of today. M3 (broad money) is valued by the Federal Reserve at US$14 trillion. Total US economy assets in 2016 were valued at US$220 trillion. So why the fascination with cryptocurrencies? Supporters of Bitcoin claim it to be a superior store of value to fiat money issued by central banks because its supply is limited by design and therefore cannot be debased. In addition, the technology behind bitcoin, called the Blockchain, provides anonymity to its players. That is why it is a favourite with money launderers, tax evaders, terrorists, drug smuggler, hackers, and anyone who wants to evade the rule of law. Many people who use cryptocurrencies assert that they pay minimal transaction costs mainly because it avoids the cost of financial intermediation.

Still, there is large potential for capital gains because of the wide volatility of its price movement. This is the main driving force behind the popularity of cryptocurrencies like bitcoin. However, there are high risks involved including extreme volatility and opaque, unregulated exchanges that are prone to cyberattacks.

Authorities and regulators worry about bitcoin because they fear it is a bubble. In the event of a bust, investors in bitcoin – they are many, spread over various continents and countries – will be hurt; and they exert pressure on governments to regulate this business in order to protect investors.

In addition, they worry about the impact – in the event that cryptocurrency trading becomes a significant element in maintaining financial stability – in terms of the impact on the transmission of monetary policy and on its effects on the banking system, and most of all, on systemic risk, if any.

Authorities have responded in different way. In South Korea, new regulations today require banks and exchanges to identify who their customers are, imposing greater transparency in the conduct of the cryptocurrency business. On the other hand, Japanese authorities are more liberal. They only require the registration of companies engaged in this business at this time.

Many other authorities, including those in the US, are adopting a wait-and-see attitude while studying the issues, recognising that there may be a role for them to introduce some regulatory measures in the event that the volume and price volatility of cryptocurrency transactions become more and more significant.

In the meantime, government and tax authorities feel uneasy about the impact on revenue collection. Other regulators are worried about crowdfunding through ICOs (initial coin offers). Authorities in a number of countries, including the US, have introduced measures to regulate the issue of new ICOs to ensure that investors are provided with the necessary information before making such investments.

At the same time, central banks in many countries are looking into the desirability and possibility of issuing their own digital currencies, including to counter privately-issued cryptocurrencies.

Recommendations:

1. Bitcoin came into prominence because of an apparent lack of confidence in fiat currency. It is imperative that governments and central banks continue to give priority to (i) protecting the integrity of their currencies; (ii) designing policies to contain inflation to prevent it from debasing the currency; and (iii) strengthening their mandate to promote financial stability over financial development, if needed (including ensure fintech development does not undermine confidence). Also, in cases where authorities do not have the power to regulate the cryptocurrency business, they should actively seek such authority where appropriate.

2. Monetary authorities should be open to creating digital currencies rather than confining their money supply to notes, coins and deposits. But they should do so in a transparent manner and only after careful consultation and study.

3. It is the role of government to warn their citizens and investors about the high risk involved, and ensure transparency in bitcoin activity, and not to unduly introduce more and more regulations that will stifle innovative initiatives. Blockchain technology, for example, does have other useful applications apart from the issue of its use in the creation of digital currency.

Investor protection

As we see today, bitcoin and the other cryptocurrencies are not currencies. Mostly, they reflect speculative activity. Hence, investing and transacting in them involve high risks. It is imperative that investors realise this and approach investing in cryptocurrencies with great caution and with as much information as is available to help them manage these risks.

Investors must fully understand that cryptocurrency prices need not necessarily always rise, particularly because they have no intrinsic value, they could just as easily fall. So investors beware: Caveat emptor.”

Update

The following developments are noteworthy:

> Columbia’s Prof N. Roubini (Dr Doom) claims bitcoin is not a currency. Few price anything in bitcoin. Not many retailers accept it (even bitcoin conferences don’t accept it as payment). And it’s a poor store of value because its price can fluctuate 20%-30% a day. Worse, he labelled it “the mother of all bubbles” because its claim of a steady-state supply is “fraudulent”.

It has already created thee similar currencies: Bitcoin Cash, Litecoin and Bitcoin Gold. Together with the hundreds of such other currencies invented daily, this creation of money supply is debasing the currency at a much faster pace than any major central banks ever did. Furthermore, bitcoin’s claimed advantage is also its Achilles’s heel – for, even if it actually did have a steady supply of 21 million units, it is not a viable currency because the supply won’t track potential nominal GDP growth; hence, prices will become deflationary – the kind of phenomenon that economist Irving Fisher believed caused the Great Depression.

Indeed, the head of the European Central Bank had since declared to the European Parliament that cryptocurrencies are unregulated and “very risky assets. Their price is entirely speculative”. That’s not what we want or need. It’s a pity the FOMO (fear of missing out) of many retail investors will end them in a wild goose ride!

> Over its nine-year history, bitcoin has had five-peak-to-trough falls of more than 70% each. The recent decline offers a dose of reality to new investors – bitcoin dropped to a low US$7,850 on Feb 2 for the first time since November 2017 – crashing 60% from the high of nearly US$20,000 in mid-December. Sentiment has shifted dramatically this year.

On Feb 5, it fell another 4% to US$7,524. Also, the fledging market has taken a number of blows: Facebook has since banned advertisements on it (for being misleading); US Securities and Exchange Commission has accused some latest ICOs as “outright scams”; US and UK largest banks have put up “road-blocks” to financing bitcoins; and the recent Japanese hack theft of 523 million crypto-XEM (worth US$500mil) brought back memories of Mt Gox, which collapsed after a similar hack in 2014.

> Arbitrage traders (buying where it’s cheap and reselling where it is dear) have been active – taking advantage of price differentials in multiple places and different times. They call it “capturing the arb”. Hedge funds, high frequency traders and even amateur enthusiasts are giving it a shot. Price divergences can be due to glitches or network traffic jams. In South Korea, exchanges quote abnormally wide prices reflecting high investors’ demand for bitcoin in the face of strict capital controls – giving rise to a “Kimchi premium” (of as high as 50% above US price; now down to 5% as price disparities are swiftly traded away).

> Concern over cryptocurrency activity is spreading beyond China, Japan, South Korea and India. This prompted the governor of the Bank of England, who also chairs the Global Financial Stability Board, to voice his unease over the anonymity embedded in blockchain technology underlying their use, especially for illicit activity (including money laundering). He disclosed that it would be on the agenda at the next G20 meeting. Tax authorities have also expressed concern over the under-reporting of capital gains tax.

> Bitcoin futures trading on Chicago’s CME and CBoE exchanges have been slow to catch fire – at the pace of a “slow walk”.

What then, are we to do

Reality check: Bitcoin is proving that cryptocurrencies can erase wealth as fast as they create it. In January 2018 alone, it wiped off US$45bil from its US$200bil in market value generated in all of 2017 – the biggest one-month loss in US dollar terms in its short history. Since then, more value is being lost. For most economists and finance experts, they don’t represent an investable asset – there are liquidity issues, safety issues, exchange issues; most of all, they have no intrinsic value.

Can’t realistically put a fix on their fair value. They are for speculators who are prepared to lose everything. Of course, its something else for those who use them for illicit activity (home to criminals and terrorists), including money laundering. Anonymity means you are potentially closing a chain, while at somewhere along it had some illicit activity that cannot see the light of day.

Fair enough, these concern regulators. But we shouldn’t lose sight of the huge range of opportunities presented by the underlying technology – a view shared by many in relation to raising the efficiency of payment systems. Regulators are right to want to regulate crypto but also, continue to encourage innovation on blockchain. As I see it, so far in 2018, bitcoin has been a total dud. The list of factors driving its decline is growing, especially rising regulatory clampdown occurring around the world.

So, the cryptocurrency market has fallen on tougher times. For sure, Bitcoin has been highly profitable for many investors. Indeed, there continues to be strong interest among millennials.

Bottom line: the year so far has been terrible for bitcoin. But the fundamental positive story for crypto appears to remain intact. Protecting consumers should make it harder for charlatans to sell digital dust. There is a point where it goes from “buying on the dip” to “catching a falling knife”. Only time will tell. So, beware!

NB: Following global regulatory crackdown, bitcoin’s price has on Feb 6 fallen to a low of US$5,947, wiping out over US$200bil so far this year. Bitcoin’s market cap is now US$109bil, about one-third of the total crypto market (that’s down from 85% this time last year). The Bank for International Settlements (banker to central banks) has now condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster” (refers to huge amounts of electricity used to create it) and warns it can even become a “threat to financial stability”.

By Lin See-yan – what are we to do?

Former banker Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015) and Turbulence in Trying Times (Pearson, 2017). Feedback is most welcome.

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