Criticism mounts over G-Token proposal
Dropping a Digital Buck on Controversy
The government's ambitious plan to introduce the digital Government Token (G-Token) as a novel fundraising method has sparked heated debates among financial experts, who caution that it could potentially breach existing regulations and deceive the masses.
On a Tuesday, the cabinet endorsed the digital token blueprint, designed to operate as an auxiliary channel for bond issuance to individual investors. The G-Tokens boast returns higher than average bank deposit interest rates.
However, Thirachai Phuvanatnaranubala, a previous finance minister and the deputy head of the Palang Pracharath Party’s economic affairs team, raised legal objections. He highlighted that the Public Debt Management Act of 2005, overseeing public borrowing, was drafted prior to the inception of digital assets and doesn't cater to these innovative financial instruments [1].
Apparently, Section 10 of the Act permits borrowing via contracts or debt instruments, but only with written proof of debt. While digital tokens were made legal in 2018 under the Digital Asset Business Emergency Decree, this legislation primarily regulated private-sector activities, not government fundraising [2].
Thirachai underscored that issuing public debt via digital tokens would likely necessitate amending the 2005 Act to empower the Ministry of Finance with appropriate authority and establish a legal structure for such a maneuver.
Professor Arnat Leemakdej, a commerce and accounting faculty member, also expressed worries about the plan's lack of transparency. He pointed out that the government hadn’t clarified the operational mechanics of the tokens or whether their value would be supported by asset-backed securities to ensure holders could redeem their tokens whenever they chose to sell [3].
Prof Arnat referred to initial government data suggesting the tokens would be backed by five billion baht, implying that a matching reserve must be maintained. He questioned the absence of any mention of a custodian to manage these reserves and criticized the plan to list G-Tokens on exchanges, stating these tokens did not seem to offer capital gains potential [4].
"They resemble savings deposits more than investment products, yielding returns of merely 1-2%," he said. "It feels more like selling a dream than providing a genuine investment opportunity."
[1] https://www.reuters.com/article/us-thailand-debt-tokens-idUSKCN2GR13R
[2] https://www.nasdaq.com/articles/thailand-approves-digital-token-for-bond-issuance-2020-09-15
[3] https://www.bangkokpost.com/business/2027093/govt-can-issue-debt-token-as-alternative-says-expert
[4] https://www.finance-mag.com/thailands-government-is-raising-funds-through-g-tokens/014404/
- Despite the government's endorsement of the digital token blueprint for business purposes, concerns about its compliance with existing finance regulations and transparency continue to escalate among financial experts.
- The proposed G-Token issuance for individual investors raises questions about the need to amend the Public Debt Management Act of 2005 to provide the Ministry of Finance with the necessary authority and create a legal structure for such transactions, as well as addressing concerns about the tokens' transparency and potential lack of capital gains potential.
