On 15 Dec, 2021, Tether Holdings Ltd released a statement lauding the National Unity Government (NUG) for accepting the stablecoin as a form of official currency. (Photo: @IcrypexGlobal / Twitter)

Cryptos: Un-Tethering from the Military Junta

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The use of cryptocurrency Tether by the National Unity Government, Myanmar's parallel government, threatens to undermine the sovereignty of the ruling State Administration Council on multiple fronts.

The National Unity Government (NUG), a parallel government in Myanmar, announced in December 2021 that it officially accepts Tether as a form of currency. In a Facebook post, NUG Finance Minister Tin Tun Naing wrote that it will be for “domestic use to make it easy and speed up the current trade, services and payment systems”. This follows its disclosure earlier in July that donations to the NUG could be made using cryptocurrencies.

Tether is a cryptocurrency – it only exists in digital form; transactions are verified and records maintained by a decentralized system using cryptography rather than by a centralized authority. In order to obtain Tethers, one has to buy them, usually on a crypto-exchange. Tether Holdings Ltd holds the US dollar equivalent and credits one’s digital wallets with an equivalent amount of Tethers.

Cryptocurrencies are designed to be untraceable and unregulated by the state. This is particularly useful for the NUG as it is considered an unlawful and terrorist association by the State Administration Council (SAC), the governing body installed by the military after the coup in February 2021. The NUG thus faces challenges in raising, transferring and accessing funds in Myanmar. The use of Tether circumvents these obstacles and protects the identity of the people who donate funds or transact with the NUG. NUG crypto-assets are also safeguarded as the military government is unable to access, seize or freeze these funds.

In addition, Tether has a distinct advantage over most other cryptocurrencies. The value of cryptocurrencies tends to fluctuate widely because their store and measure of value functions are not regulated. Tether, a ‘stablecoin’, has resolved this problem by pegging its value to the US dollar. For the NUG, this is a valuable feature as it helps to preserve the value of its funds, particularly given the drastic decline of the value of the Kyat vis-à-vis the US dollar for most of 2021, brought about by the coup in February and its aftermath.

Nevertheless, there are two main considerations when using Tether as a currency. First, Tether is not widely accepted online for the purchase of goods and services. Instead, stablecoins like Tether tend to be used by online crypto-exchanges to price cryptocurrencies in US dollars so that account users do not have to set up a US dollar bank account. In addition, most investors use stablecoins like Tether to bet on the price of other cryptocurrencies like Bitcoin rather than to trade.

For the NUG, this means that Tether is not a very good medium of exchange. The value of their Tethers has to be accessed through exchange into another cryptocurrency, like Bitcoin. This negates the advantage of using a stablecoin as the NUG will be exposed to the highly volatile price of non-stablecoins. Moreover, if the NUG exchanges its Tethers for other cryptocurrencies, they will only be able to conduct financial transactions with merchants or vendors that accept cryptocurrencies.

The way to bypass this is to return the Tethers to Tether Holdings in exchange for the US dollar amount. Tether Holdings claim that they have US$69 billion in safe assets. However, there are concerns about whether Tether is truly backed by this amount and how, as reported by Bloomberg in 2021.

By adopting Tether as part of its parallel financial system … the NUG bypasses and challenges the SAC’s monetary regulations, calls attention to the latter’s mismanagement of foreign exchange, breaches the boundaries of the Myanmar state, and has the potential to undermine state revenues in the form of tax evasion.

Beyond the practicalities of using Tether, the adoption of the cryptocurrency by the NUG has political significance. It threatens the sovereignty of the military government in general and its monetary sovereignty in particular. Monetary sovereignty is the power of the state to exercise exclusive legal control over its currency. This broadly includes the exclusive authority to designate, issue and retire the legal tender forms of payment.  

Cryptocurrencies threaten monetary sovereignty because their unregulated and highly volatile nature does not come under the purview of monetary policies set by the central bank and the sovereign government. This threatens the important functions of monetary sovereignty – to control inflation and financial stability in the country. For this reason, the Central Bank of Myanmar, under the democratically elected National League for Democracy, declared cryptocurrencies illegal in 2020.

Beyond financial and economic concerns, cryptocurrencies undermine sovereignty because the function of national currencies goes beyond those related to being a medium of exchange, a measure of value and a store of value. National currencies were also created to cultivate a sense of nationhood, reinforce the boundaries of the national economy, and boost the state’s revenues. By adopting Tether as part of its parallel financial system (including the sale of NUG bonds, the collection of taxes, the remittance of funds to other countries), the NUG bypasses and challenges the SAC’s monetary regulations, calls attention to the latter’s mismanagement of foreign exchange, breaches the boundaries of the Myanmar state, and has the potential to undermine state revenues in the form of tax evasion. In doing so, it challenges the legitimacy and sovereignty of the military junta and establishes financial currency as another site of political struggle.

2022/11