Asia Techonomics: With Bitcoins out of the debt trap: Laos is fighting against national bankruptcy with crypto currencies

Asia Techonomics

In the weekly column, we alternately write about innovation and economic trends in Asia.

(Photo: Klawe Things)

The communist-ruled one-party state of Laos had a clear opinion on crypto currencies for a long time: the population should definitely keep their hands off it, the financial supervisory authority repeatedly called for. After all, transactions with Bitcoin and Ether in the country are not only illegal, but also dangerous, it said. There are hardly any ways to protect citizens from fraud and other dishonest business.

But the cryptoskeptics in China’s southern neighbor have now fallen silent in one fell swoop. The reason: The government of the heavily indebted country wants to make a big profit from the business with digital currencies.

According to the Communist Party’s plans, the revenue could noticeably relieve the strained national budget in the coming year – and save the bitterly poor country from possible national bankruptcy.

The seven-million-inhabitant state, which with its annual per capita income of 2,600 dollars has so far been relatively insignificant for the global economy, is to become a new center for so-called cryptomining – i.e. for mining digital coins.

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The decision to legalize the business came just months after China decided to move in the opposite direction. Chinese authorities banned the miners, who use energy-intensive computing processes on computers to keep the crypto infrastructure running, out of the country in May.

Hydropower is supposed to power the server farms

Laos now sees itself in a good position to become an alternative location for the industry, which is frowned upon in China – and attracts with electrical energy in abundance: The country’s hydropower plants along Southeast Asia’s most important river, the Mekong, produce significantly more electricity than the economy and Population need. As a result, Laos currently sells more than two thirds of its energy to its neighboring countries, earning more than two billion dollars in the first nine months of 2021 alone.

Using part of the excess capacity to power the server farms of the mining industry could be even more profitable from the government’s point of view. In a first step, it gave six local companies permission to set up a prospecting business and establish crypto trading platforms – in the hope that the state coffers would fill up noticeably.

The miners have to pay a million dollars for every ten megawatts of electricity they consume. The license for a trading platform costs another million. And of course the Laotian crypto companies also have to pay tax on their profits.

According to the Ministry of Finance, revenues will have a significant impact as early as 2022. According to this, cryptomining should bring in around 180 million dollars – after all, seven percent of the entire budget.

Market in Laos’ capital Vientiane

The country is struggling with a high level of debt and is in an economic crisis.

(Foto: imago images/Xinhua)

The additional income would be just right for the country in the midst of an economic crisis: Laos is struggling with a mountain of 14 billion dollars in debt, which corresponds to around two-thirds of total economic output.

Credit rating at junk level

In view of the loss of tourism income during the corona crisis and a weak economy, the government in Vientiane is having major problems meeting its obligations, according to the Fitch rating agency The country’s creditworthiness is only at the junk level CCC. The analysts judge that the repayment of foreign debts remains a challenge. Between 2022 and 2025, Laos must raise $ 1.2 billion.

Should Laos actually be able to close the gap with a breakthrough in the crypto market, that would not only be good for public finances. With this commitment, the country could also help to improve the reputation of cryptocurrencies as climate offenders a little. After all, a renewable energy source would be used to mine the coins – unlike in China, where server farms used to be operated using electricity from coal power.

But it is not entirely without controversy: The numerous dams in Laos, which would provide the energy for the miners, have a bad reputation among environmentalists because they are held responsible for disturbances in the ecosystems downstream.

In addition, Laos has been repeatedly criticized in the past for being home to criminal groups and not doing enough to combat money laundering. The danger that dubious financial transactions could expand due to a booming crypto industry in the country cannot be dismissed out of hand.

More: Singapore wants to become Asia’s crypto capital

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