In recent years, cryptocurrencies have gained global attention, but Nepal maintains a highly restrictive stance on their use.
Cryptocurrencies like Bitcoin, Ethereum, and other virtual currencies are digital forms of money powered by blockchain technology. Decentralized and secured by cryptography, they offer a transparent way to exchange value without a central authority.
However, Nepal has chosen to outlaw these digital assets entirely. Citing concerns about money laundering, security, and potential abuse, Nepal’s government has taken strict steps to prohibit cryptocurrency usage. Under the Foreign Exchange Regulation Act of 2019 and the Nepal Rastra Bank (NRB) Act, virtual currencies are illegal in all forms. The NRB, Nepal’s central bank, has issued clear directives prohibiting the use of cryptocurrencies for financial transactions, citing them as unlawful under existing legal frameworks.
Legal Frameworks Governing Cryptocurrencies
The Foreign Exchange Regulation Act, 2019 serves as the primary legal instrument for regulating financial exchanges in Nepal. This Act is designed to monitor the flow of currency in and out of the country, especially when foreign exchange is involved. Using this legislation, Nepal Rastra Bank has banned cryptocurrency transactions, labeling them as illegal under the guise of controlling capital flight and protecting the national economy.
The ban on cryptocurrencies is not without consequence. Nepal has seen arrests, such as in 2017 when the Central Investigation Bureau apprehended individuals involved in Bitcoin mining and exchange operations.
Examining the Ban’s Impact
The absence of a legal framework around digital currencies in Nepal has hindered the development of blockchain-based financial technologies. The strict prohibition limits the growth potential for Nepalese individuals and businesses wanting to explore decentralized finance or invest in digital currencies. Moreover, with no provisions for licensing or legalizing cryptocurrency exchanges, Nepalese citizens are entirely excluded from the global cryptocurrency marketplace.
Cryptocurrency exchanges and wallet providers elsewhere typically operate under stringent KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations to ensure security and transparency. Yet, in Nepal, the lack of formal regulations and a structured licensing system makes it impossible for such platforms to operate legally.
Cryptocurrencies remain outlawed in Nepal, with the Nepal Rastra Bank actively enforcing the Foreign Exchange Regulation Act of 2019 to penalize any attempts at mining, exchanging, or transacting in digital currencies. Without a clear regulatory framework for cryptocurrency, the future of decentralized financial technologies in the country looks dim. To move forward and embrace global technological trends, Nepal would need to establish comprehensive laws that allow for legal, secure, and transparent usage of cryptocurrencies while ensuring compliance with financial safeguards like KYC and AML.
Nepal’s current stance reflects a cautionary approach towards digital currencies, prioritizing security and financial regulation above technological experimentation.