By Chee Jo-Ey
The government should give people and businesses more time to adapt to the new cash transaction limit or gradually impose the limit in stages, although the move will help curb money laundering and illicit transactions, say analysts.
Malaysia is planning to impose a cash transaction limit of RM25,000 starting next year. The new move intends to help keep financial integrity in Malaysia in check, in addition to existing preventative measures like the suspicious transaction report and cash threshold report.
According to Malaysia’s 2017 National Risk Assessment on Money Laundering and Terrorism Financing, cash’s anonymous and untraceable nature makes it widely vulnerable to abuse by illegal activities which include fraud, smuggling, corruption, drug trafficking and organised crimes.
Even though the move’s purpose is to curb illegal businesses, it is expected to pose challenges to certain segments of businesses and individuals.
“Setting the limit at a relatively low level will cause inconvenience to certain people and businesses. It will most probably affect the T10 and people who travel a lot on the consumer side of things. Businesses or people engaging in certain types of transactions will have a hard time adjusting to new modes of payment. They will have to find a way to use less cash and it will push them to online banking,” says Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew.
A cash transaction limit is a limit on the amount that can be paid by physical cash per transaction. Any transaction above the limit cannot be paid by physical cash.
A string of cash transactions is considered as a single transaction if it is made to or from the same person for the same purpose and on the same day. Splitting a payment into a few transactions within the same day is a breach of the limit.
Other countries have initiated similar limits. Australia and Indonesia are in the middle of putting a limit to cash payments.
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar says the move to limit cash transactions will affect businesses.
“The cash transaction limit will impact some businesses negatively, even if they are legitimate ones. Businesses dealing with luxury items (watches, jewellery and the like) will be hit, as will be contractors dealing with renovations and related goods such as tiles and chandeliers, as well as high-end furniture dealers. It is also possible that businesses engaged in making advance payments for commodities (such as palm oil) will be affected.
“Only the T10 will be affected by the move; not those in the next 90%. This is likely to involve a small segment of the population,” he says.
SME Association of Malaysia national president Datuk Michael Kang says the cash transaction limit will create challenges for businesses.
“We are waiting for dialogue and more details on the RM25,000 cash transaction limit. According to news reports so far, it will create a big impact to businesses if implemented in all industries. The move will create challenges for those transacting in cash deals like the smallholders in the rubber, palm oil, fruits and agriculture industries.
“The government is looking to control the shadow economy or illegal activities like money laundering. But industry traders will face big challenges unless Bank Negara Malaysia makes exemptions for those in cash deal businesses. To overcome the challenges, remove cheque charges, increase cash transaction limits and set up an ecosystem for the cash transactions. Small holders and businesses will be affected the most by the new limit,” he says.
The limit on cash transfers does not apply to transactions with regulated financial institutions as they already have strict anti-money laundering or counter-terrorism mechanisms in place. Physical cash transactions for disaster relief and humanitarian aid will also be exempted, subject to getting approval from the Ministry of Finance on the recommendation of Bank Negara Malaysia.
The physical cash transaction limit does not affect money-changing transactions with a licensed money changer. Any transaction that goes above the limit of RM25,000 can be paid electronically via credit card or cheque.
More time needed
Inter-Pacific Research’s Pong says the government should give people and businesses more time to be more prepared to switch from cash to online.
“The limit will make cash transactions less convenient, but it is not a foolproof way to curb illegal transactions. Cash is the simplest way of dealing with businesses, but of course, using cash is costly in the perspective of the central bank. Printing currency notes can be expensive. The reaction is generally negative because of the inconvenience it causes, as Malaysians are not used to not being able to use cash. All in all, the government should defer the move and give people and businesses a notice to be prepared or slowly lower the limit in stages,” he says.
Nambiar adds: “It is a question of taking some time to switch from cash, which may have been the more convenient mode of payment earlier on, to other forms of payment. The difficulties posed will be a matter of getting over old habits, resulting in a temporary increase in the inconvenience of doing business.
“Virtual banking has been increasing in usage over the last few years, and with this measure, one can expect the usage to be further increased. There are adequate instruments available to make mid-sized payments (RM50,000 to RM100,000) without resorting to cash.”
Universiti of Malaya department of finance and banking senior lecturer Eric Koh says the limit on cash transfers will help to curb illegal activities.
“The cash transaction limit is meant to help reduce the incidences of illicit activities. Such activities may be more easily done via cash because physical cash transfers are not traceable. Some parties claim that the cash transaction limit makes it more cumbersome to run businesses and have suggested a RM50,000 cap instead. Those that are more likely to be affected are the high-value dealers, medical tourism, hotels and wholesale sectors. Meanwhile, others have suggested that there should be minimal disruptions because most businesses and their counterparties are already using electronic transfers rather than using physical cash entirely.
“I am inclined towards the latter view because we are, just like many other countries, moving towards using more electronic transfers, for greater efficiency and security. And if we don’t like electronic transfers, we can still transfer via banks and other pertinent approved regulated entities. Besides, if the transactions are legal and proper, why should one worry about being traced by the regulators?
“I think the resistance will decrease if there is increasing efficiency and security in the electronic transfer mechanisms. Perhaps, the regulators can also provide clear and simple guidelines in terms of the pertinent restrictions and documentary requirements, if any,” he says.
Thanks to the rapid proliferation of payment solutions like digital wallets and mobile payment apps, electronic payments have seen greater adoption and are becoming the norm.
The government has ramped up efforts to provide Malaysians access to payments infrastructure and remove barriers to the adoption of electronic payments in recent years. The traditional method of paying with cash and cheques is slowly being replaced by electronic payments via plastic cards or through electronic channels. Even though some large corporations in Malaysia have embraced electronic payments, there are others that continue to rely on traditional methods like cash and cheque.