Indonesia’s central bank on Thursday said it had issued a new regulation prohibiting the use of cryptocurrencies — including bitcoin — in the country, as their rising popularity has raised concerns over unwanted impacts on the economy.
Bank Indonesia had for some time said that the use of cryptocurrencies ran contrary to Indonesia’s law mandating the use of rupiah in domestic transactions. The new regulation on financial technology signed on Nov. 29, however, is the first time that the central bank specifically mentioned that “the use of virtual currencies in payment system [and] activities … is prohibited.”
“Virtual currencies have weak foundation and are highly volatile — surely this [may] pose negative impacts on our economy,” Deputy Governor Sugeng of the central bank told the press on Thursday.
“If [the market becomes] turbulent, it will be worrying. And to investors … the uncertainty will be very high. There is a huge risk from virtual currency use, so we hope fintech providers won’t engage [in the business],” he said.
The new regulation will come into force on Jan. 1. A company found to use bitcoin in transactions will have its fintech license revoked or, if they’re still in the process of applying for a license, the application will be rejected. In the wake of rising popularity of digital payment services, Bank Indonesia has recently mandated all providers of such services to register with the bank.
The regulation, however, only prohibits the use of cryptocurrencies as a payment tool, and does not regulate activities such as bitcoin mining and trading. Sugeng said the bank would keep studying the use and potential risks of cryptocurrencies in Indonesia, and might issue further regulations later. He added the central bank was very supportive of financial technology, but wanted to make sure it would not pose any harm to the country’s financial stability.
For now, “If anyone dares to receive or use virtual currencies like bitcoin as [a payment tool], then BI will not bear responsibility,” another official said, referring to the central bank.
There is no official data as to how prevalent bitcoin use is in Indonesia. Bitcoin Indonesia, which trades bitcoin and some other digital assets in the country, said on its website that it currently has 684,000 members. But the current craze for bitcoin and cryptocurrencies in other parts of the world has alarmed the central bank.
Bitcoin extended its rally on Wednesday on the Luxembourg-based Bitstamp exchange, exceeding $13,000 to reach a record high. That is a growth of more than tenfold from levels below $1,000 at the start of the year, Reuters reported.
A cable TV provider controlled by one of Indonesia’s richest men, Dato Sri Tahir, in September announced it would accept bitcoin for payment.
“Bitcoin is considered able to speed up payment activities. It is free of charge, and has potential to become a future digital money with soaring value,” Topas TV wrote in a statement, according to Indonesian news portal kompas.com.
With the ban, Indonesia has joined the ranks of countries that have declared war against bitcoin and other cryptocurrencies, including China and India.
But Stephen Obie, partner at American law firm Jones Day, believes that financial regulators must inevitably accept cryptocurrencies, given their rising popularity.
“[The fact that three U.S. exchanges are planning bitcoin futures] itself suggests that there is pent-up demand in institutional players, and others, to access [the cryptocurrency] market in a way that is familiar to the regulated community,” he told the Nikkei Asian Review in Singapore recently. “There is the chance that society as a whole will move to cryptocurrency, and the traditional regulations where we have anti-money laundering and Know Your Customer will be supplanted.”
Obie said instead of rejecting cryptocurrencies, regulators should “stay on top of the technology, understand how it’s being utilized and employ rational regulation”.