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26 May 2021

With Greg Earl

Cryptocurrency and geopolitics

Last week, as the cryptocurrency market fell into turmoil, financial services minister Jane Hume said the Morrison government would “let people make their own decisions” about investing in high-risk assets.

By contrast, China and the United States each signalled they would be reining in digital currencies, in a rare alignment of their geoeconomic concerns.

The People’s Bank of China warned financial institutions against accepting payments in bitcoin or other cryptocurrencies, saying they are “not a real currency”.

Following the US Treasury’s announcement that it would crack down on cryptocurrency transactions to reduce money laundering and tax evasion, the US Federal Reserve Board said it was expediting plans for a central bank–backed digital dollar.

Investors have been drawn to cryptocurrencies as a hedge against central banks undermining confidence in fiat currencies with their recent free spending.

Now the wild swings in the value of cryptocurrencies are raising concerns that they will be a new source of financial instability, which agencies like the People’s Bank and the Fed will need to manage in concert.

The creation of cryptocurrencies is also highly energy intensive: Bitcoin consumes more electricity per year than small countries like Malaysia or Sweden, according to the Cambridge Center for Alternative Finance. As a result, cryptocurrencies have become part of the carbon-emissions debate.

China, the United States and other countries share a concern that cryptocurrencies will undermine their national currencies. An additional worry for the United States is that cryptocurrencies could weaken the status of the US dollar as the world’s reserve currency.

China is further along in the process of developing its own alternative digital money, which could also threaten the US dollar’s clout.

However, Fed chairman Jerome Powell recently claimed the US dollar would remain the top currency “because of our rule of law, our democratic institutions, which are the best in the world, our economy, our industrious people, all the things that make the United States the United States”.

With these larger issues at play, the Morrison government might need to adopt a more comprehensive policy than simply telling investors “buyer beware”.


Myanmar impasse

Less than four months after the unexpectedly swift and brutal return of military power in Myanmar, the country risks falling into a dangerous impasse as international interest in the coup and its aftermath appears to be waning.

Last week, coup leader General Min Aung Hlaing hinted it may take legal action to dissolve the National League for Democracy, the party that won two national elections under Aung San Suu Kyi. The same week, united opposition forces raided a police station, killing several officers.

Meanwhile, the Association of Southeast Asian Nations has not even managed to name a special envoy to deal with the crisis. The authority of the group’s economic integration would be greatly undermined by having a failed state in its ranks.

The reality is that other international events – including the violence in Gaza and a new wave of COVID-19 in Asia – have diverted attention from the coup, which was unexpectedly met with fierce backlash from the population.

The junta seems intent on following Thailand’s recent model. If the junta eliminates the existing popular party through the courts, it would pave the way for a pro-military party to prevail in the election it has promised. By introducing a federal system, the junta could also win over some ethnic minorities.

Much will depend on whether democracy supporters can form successful alliances with minorities and resist the offer of military democracy.

ASEAN members have an opportunity to influence how this unfolds. For example, unlike the Myanmar military, the Thai military does not hold appointed seats in parliament, making it possible for a more democratic system to emerge in future. ASEAN could insist that the Myanmar military forfeits its seats, though the pro-democracy camp would not be happy with such a compromise.

The Morrison government has cautiously supported a frontline role for ASEAN in resolving the Myanmar crisis. It should now use its diplomatic capital to warn ASEAN that its slow progress will undermine the group’s claim to be central to Asian diplomacy.


Samoa showdown

Samoa’s peak institutions were split over the weekend on whether to reconvene parliament following the country’s general election on 9 April. The split seems to indicate the country’s political crisis will continue for some time.

Prime minister-elect Fiame Naomi Mata’afa was sworn in as leader in a makeshift ceremony in a tent outside parliament when her predecessor, caretaker prime minister Tuilaepa Sailele Malielegaoi, refused to allow the building to open.

Malielegaoi’s Human Rights Protection Party (HRPP) has been in power for thirty-nine years, but Mata’afa, who left the HRPP to lead her FAST Party, claimed a narrow victory at the polls.

The impromptu swearing in of Mata’afa will likely lead to further division. The head of state is backing the country’s outgoing leader and the Supreme Court is backing Mata’afa. Many disputed election results are yet to be resolved.

Australia is the economic and security power of last resort in the Pacific, but it also gets accused of being overbearing.

Despite Australia’s invidious position, foreign minister Marise Payne has signalled where the Morrison government appears to stand on this issue, tweeting that Australia has “faith” in the Samoan judiciary – and, by extension, the incoming prime minister.


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Deterrence through denial – a strategy for an era of reduced warning time

“We can no longer assume that Australia will have time to gradually adjust military capability and preparedness in response to emerging threats.” Paul Dibb & Richard Brabin-Smith, Australian Strategic Policy Institute

ASEAN’s huge gamble on Myanmar

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Manila embraces the United States despite Duterte’s neglect

“Philippine president Rodrigo Duterte’s strategy of non-confrontation and closeness with China at the expense of its security alliance with the United States has not changed Chinese behaviour in the South China Sea.” Julius Cesar Trajano, East Asia Forum

Free from Australian Foreign Affairs

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