Legality of Digital Currency in Malaysia

Transaction and payment methods have evolved over time because of different aspects like security, technology, and sociability. Over the past few decades, the world has been moving toward digital transaction methods and different types of currencies started being used for making payment and business transactions.

Cryptocurrency is a form of digital currency, being used for trading, business transactions etc. The usage of digital currencies has always been a challenge due to various factors including security. Digital currencies like Bitcoin, and Ethereum are like digital cash, that user can store in their digital wallet and they use cryptography to secure digital transactions.

Digital Currency has not been successful in gaining legal status all over the world, but its legality differs from one jurisdiction to another, like Japanese parliament made amendments to their Payment Systems Act and passed laws to recognize Cryptocurrency as a payment method similar to traditional currencies like Yen. On the contrary, China has banned digital currency and initial coin offerings (ICOs) declaring it as an unapproved and illegal source of public financing.

In Malaysia, digital currency is legal but its status remains unregulated as the Central Bank of Malaysia does not issue digital currency. Bank Negara Malaysia, back in 2014 issued a statement that Bitcoin is not recognized as legal tender, advising the public to be cautious with the risks associated with the usage of such digital currency. In 2022, the Malaysian caretaker Finance Minister stated in his speech in parliament that their government has no intentions of making Cryptocurrency a legal tender.

Bank of Negara in 2017, issued regulations and guidelines that all the money exchanges operating in Malaysia, using digital currency have to register themselves with the Security Commission of Malaysia (SCM), whose main function is to provide protection the investors, businesses, etc. Central Bank of Malaysia (Bank Negara Malaysia) has provided guidelines for the exchanges to register with the central bank and comply with anti-money laundering (AML) and know-your-customer (KYC) requirements. Furthermore, the exchanges that regulate tokens and plan to launch initial coin offerings (ICOs) need to seek approval from the Security Commission of Malaysia (SCM).

The main reason behind the unregulated status of digital currency is the risk of fraud and because it could be used as an easy tool to facilitate money laundering. Money laundering is usually done by following the process of three stages that involves placement, layering, and integration.


In order to encounter the potential threat, Malaysia implemented Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations to prevent the illegal use of digital currencies. AML/CFL refers to any measures or programs to prevent terrorism financing or money laundering. These measures or compliance programs by AML/CFL are designed to assist the companies or institutions to prevent them from being misused by criminal entities that intend to launder money. The compliance program helps them to detect such activities and to report the potential risk of terror financing or money laundering to the authorities.

After providing legal cover to the usage of digital currencies by the exchange companies, the Malaysian government decided to bring them to the tax net. All the digital currency-using entities are subjected to taxation. The income generated from Cryptocurrency through trading or mining is considered as taxable income and all the businesses or individuals involved in crypto trading or mining are required to register themselves and pay taxes accordingly.

Cryptocurrency and its fair usage in Malaysia highly depends on the development of the financial technology in the country. Recently many of state institutions like Bank Negara Malaysia, the Security Commission, commercial banks, and the Malaysian Digital Economy Corporation are providing support to technology companies and startups to enable the advancement in the financial systems with the help of technology.

With the support of the major stakeholders in the financial sector of the country, financial technology has started growing day by day and it will be interesting to see the future of digital currency in Malaysia in the coming years.

Will the Bank of Negara recognize the Cryptocurrency as a reliable and legal source of transaction in the country?

Will the Security Commission Malaysia provide regulations and guidelines to regulate the ICOs?

There are some unanswered questions about the future of digital currency in Malaysia that only time will answer.

 Muhammad Saqib

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