Regulating cryptocurrencies

Norwegian airline

Cryptocurrencies are hogging the limelight.

They are also creating a clear division in opinion. Because it essentially involves the raising of public monies, traditional finance professionals are pooh-poohing them. Top bankers are calling them the biggest fraud of the century. Its believers, though, are plodding along because no one is really stopping them.

Oh, that is unless you are based in China. The Chinese government has come down hard and strong on it. And it is likely that the key reason why they are trying to kill initial coin offerings (ICOs) is because a lot of their nationals have figured out that participating in ICOs or just by buying and selling bitcoins is one of the easiest ways to take their money out of China.

On Friday, South Korea banned domestic ICOs and margin trading in cryptocurrencies. The Financial Services Commission in Seoul said all forms of ICOs are prohibited in the country, including projects that share profits, rights, dividends and other “coin-styled” offerings. The commission also banned the practice of loaning funds to trade currencies, including bitcoin and ethereum.

Other regulators around the world also have rules that they are likely going to deem an ICO as a securities issuance and therefore needing to fulfil existing securities laws, which are rather stringent. These include countries such as the United States, Singapore and Hong Kong. Strangely, though, the only regulatory stand at this point coming out from Malaysian regulators is a buyer beware message from the Securities Commission. Bank Negara is saying that it is in the process of coming out with a ruling on cryptocurrencies.

Meanwhile, reports continue to indicate that vast amounts of illegal money are flowing through cryptocurrencies. A convention this coming week in Kuala Lumpur – the 9th International Conference on Financial Crime and Terrorism Financing - will reveal the depths in which rogue monies flow through cryptocurrencies.

Malaysia’s regulators ought not to wait any longer to take a harder stand on cryptocurrencies.

 Emulating the Norwegians

Norwegians are a lucky bunch. The country is officially ranked the happiest place to be on earth in 2017 and its 5.2 million population are also among the richest citizens in the world. Earlier this month, Norway’s oil fund size reached an unprecedented level of US$1 trillion, or about three times the size of the Malaysian economy.

This enormous wealth was created because 20 years ago, the Norwegians believed that they needed to safeguard their oil revenues for future generations.

We have the same luck as the Norwegians in having oil in our seabeds, and we are also good at extracting it.

But while Petroliam Nasional Bhd (Petronas) has some cash reserves in its coffers, it is nowhere near the amount of Norway’s oil fund size. One key reason for this is because Petronas has been tapped by the Malaysian government. Petronas’ annual dividends to the government makes up a significant chunk of the country’s annual budget that is used to pay for development and operating expenditure.

Last year, Petronas’ total dividend payout to the government amounted to RM16bil, down from RM26bil in 2015. That was because Petronas made less profits due to the weak oil price. Total oil revenue for the government last year came in at slightly more than RM30bil, which was down from RM44bil in 2015, largely because of cheaper crude oil prices (total oil revenues include royalty payments, among others).

All is not lost, however. Malaysia can still try to emulate the Norwegian model, especially now that we have the Goods and Services Tax that is expected to generate a steady stream of at least RM40bil a year in revenue for the government.

With the price of crude oil rising to a two-year high, the government’s oil revenue is also set to recover.

What if a portion of this oil revenue is set aside, creating what could be essentially a giant savings account for the future. Oil is also a finite resource, and one day, the wells will run dry.

We should make the right choice for our future generations, notwithstanding past excesses.

New battle in the sky

THIS week, Norwegian, the sixth-largest low-cost carrier in the world, landed in Changi Airport from London’s Gatwick Airport. Its introductory one-way fare was a mere £149.

This is about the price AirAsia had offered some years ago when it was plying the KL-London route. It was discontinued due to rising costs.

Changi is Norwegian’s second Asian stop after Bangkok, which it flies to from Oslo. Founded in 1993, Norwegian is majority-owned by Bjorn Kjos, a Norwegian aviator, lawyer and business magnate.

The airline has over 150 aircraft and has been adding long-haul routes across the Atlantic and now into Asia. It plans to fly into Argentina next summer.

The arrival of Norwegian surely signals a new fight in the skies between the low-cost carriers and premium carriers. If Norwegian can maintain its lower fares, it will be an attraction for the fast-growing middle

class flying community in Asia. Changi is a transit hub for Asia and there are enough connections for transit traffic for Norwegian to capture from Asia.

Even Malaysia Airlines will be feeling the heat from this new competition. There will be travellers who would turn to Norwegian for connectivity into London and Europe. Perhaps, the national carrier might need to review its airfares for its only long-haul route to London.

AirAsia will also be affected, as it has plans to return to London and that route now faces a new competitor in the form of Norwegian.

The flight from Gatwick to Changi is the world’s longest long-haul route for a low-cost carrier (its planes carry over 300 passengers for the over 12-hour journey). Norwegian achieves this by using more fuel-efficient jet aircraft.

The airline uses the B787-900 Dreamliner aircraft, which incidentally was ordered by Malaysia Airlines recently.

Long-haul will increasingly become a preferred choice in the next few years, as people prefer to fly direct instead of transiting.

For some time, the Middle Eastern carriers dominated these routes with attractive fares, but with transit stops in the Middle East. Travelling patterns, though, are changing. Even Qantas is planning to fly direct from Perth to London. It also wants to do away with its Dubai stop for its London flights.

So, low-cost long-haul, if executed well, is a sure winner.

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