Cryptocurrency has been a global financial trend, but in Nepal, all forms of crypto transactions and mining are strictly prohibited. This ban is rooted in the Foreign Exchange (Regulation) Act of 2019, which governs all currency-related activities in the country, including foreign exchange, remittances, and now, virtual currencies.
The Nepal Rastra Bank (NRB), Nepal’s central bank, has enforced this law and explicitly declared cryptocurrencies, such as Bitcoin and other virtual assets, illegal. The act limits the exchange of foreign currencies between Nepalese citizens and the rest of the world for both personal and business purposes, setting strict rules around payments to foreigners for goods and services.
As of 2023, the government has yet to introduce any provisions for the legalization of cryptocurrency, keeping the ban firmly in place. Let’s explore why this ban exists, its implications, and the economic logic behind it.
Legal Restrictions and Penalties
The Nepalese government’s stance on cryptocurrencies is highly restrictive. In a 2021 official notice, the government made it clear that any transaction involving Bitcoin or other virtual currencies is a violation of the Foreign Exchange Regulation Act. The NRB confirmed that individuals engaging in cryptocurrency trading or mining will face legal penalties. This means that not only is crypto trading illegal in Nepal, but owning, using, or dealing in virtual currencies in any form is against the law.
नेपालमा Bitcoin लगायतका Cryptocurrency हरुको कारोबार गर्न पाइँदैन। यस्तो कारोबार गर्नु कानुनतः अवैध हो।
This stringent regulation reflects the country’s firm position against cryptocurrencies, discouraging citizens from using them to avoid legal repercussions.
Nepal’s Plan for Central Bank Digital Currency (CBDC)
While Nepal has banned cryptocurrencies, the country is considering alternatives. In August 2022, the NRB revealed its intention to develop a Central Bank Digital Currency (CBDC). The NRB has urged lawmakers to amend the Nepal Rastra Bank Act to include provisions for issuing digital currency under the supervision of the central bank. The proposed CBDC would be a government-backed digital asset, unlike decentralized cryptocurrencies like Bitcoin.
This shows the government’s cautious approach toward digital assets. Instead of allowing decentralized and unregulated cryptocurrencies, the NRB prefers to introduce a controlled digital currency that aligns with national interests and monetary policies.
Economic Reasons Behind the Ban
One of the key reasons for banning cryptocurrencies in Nepal lies in the country’s foreign exchange reserves and the structure of its economy. As of September 2024, Nepal’s foreign exchange reserves stood at USD 14.4 billion. While this may seem substantial, Nepal’s economy heavily relies on remittances from citizens working abroad.
The central bank’s report showed that remittance inflows had increased by 21.6% year-on-year, reaching a staggering Rs839 billion (approximately $6.36 billion USD) in the first seven months of the fiscal year. Over 400,000 Nepalis left the country on work permits, contributing to this sharp rise in remittance income.
Nepal’s reliance on remittances is critical because it supports the country’s foreign exchange reserves, which are essential for purchasing imported goods. Nepal imports most of its essential items, including food, fuel, and medical supplies, so the stability of foreign exchange reserves is crucial for economic stability. Allowing cryptocurrency transactions would encourage the outflow of foreign currency, potentially draining these reserves, which would destabilize the economy.
Moreover, Nepal’s export sector is underdeveloped, which makes it difficult to replenish foreign exchange reserves through trade. If the government allowed cryptocurrencies, it could lead to capital flight, where money flows out of the country into decentralized markets, leaving Nepal with fewer foreign exchange reserves to meet its import needs.
Conclusion
In conclusion, the ban on cryptocurrency in Nepal is not simply a government preference but rather a reflection of Nepal’s economic vulnerabilities, especially regarding foreign exchange reserves. The Nepal Rastra Bank’s restrictions on virtual currencies are designed to protect the economy from potential risks associated with capital outflow. The government remains cautious of decentralized digital assets, while simultaneously considering the development of its own Central Bank Digital Currency (CBDC).
By focusing on economic stability, safeguarding remittance inflows, and ensuring regulatory control, Nepal’s ban on cryptocurrencies reflects the broader economic challenges the country faces.
Nepalese citizens are encouraged to follow legal guidelines when it comes to financial transactions and be cautious about dealing with unregulated virtual currencies. For now, until the government introduces any legal framework, cryptocurrency trading in Nepal will remain a risky and illegal activity.
FAQ:
- Why is cryptocurrency banned in Nepal?
Cryptocurrency is banned in Nepal due to the Foreign Exchange (Regulation) Act 2019, which prohibits virtual currency transactions to protect the country’s foreign exchange reserves. - Is Bitcoin illegal in Nepal?
Yes, Bitcoin and all other forms of cryptocurrencies are illegal in Nepal as per the regulations enforced by Nepal Rastra Bank (NRB). - What are the penalties for trading cryptocurrency in Nepal?
Individuals involved in cryptocurrency trading or mining face legal consequences, including fines and imprisonment, as per Nepalese law. - Is there any plan to legalize cryptocurrency in Nepal?
Currently, Nepal has no plans to legalize cryptocurrencies, but the Nepal Rastra Bank is working on introducing a Central Bank Digital Currency (CBDC). - Why does Nepal rely on remittances?
Nepal heavily depends on remittances from citizens working abroad, which contribute to the country’s foreign exchange reserves. This reliance is one of the reasons cryptocurrency remains banned.
