Why Have These Countries Banned Cryptocurrencies?
Cryptocurrencies have ramped up the world of digital economy to themselves deserving the attention of economists, governments, people in general, and even lawmakers in particular.
Let us start with the basics. What is a cryptocurrency anyway?
A digital currency, or cryptocurrency, is an alternative payment method developed utilizing encryption methods. By utilizing encryption technology, cryptocurrencies may act as both a medium of exchange and a virtual accounting system.
In addition to enhanced financial privacy, faster and less expensive cross-border transactions, and the possibility for financial inclusion in areas with limited access to traditional banking services are just a few benefits that cryptocurrency offers.
However, there are hazards associated with them as well, including price volatility, security issues, and regulatory difficulties.
With its promise of decentralization and transnational transactions, cryptocurrency has become the focus of the global financial industry. However, not all nations have welcomed this revolutionary technology with open arms.
Now, cryptocurrencies may be banned or highly restricted in several countries can be due to many reasons. Countries may ban cryptocurrencies due to concerns about illegal activities like money laundering and tax evasion. They worry that cryptocurrencies offer anonymity, making it hard to track such activities.
This blog goes into the factors that led certain countries to take the bold action of outlawing cryptocurrencies in an insightful analysis of regulatory environments. By dissecting the specifics and rationales of these prohibitions, we can shed light on the complexity that has influenced the global perspective on this new financial frontier.
So we are now ready to go into the list of countries that have banned the trade and holding of cryptocurrencies.
Countries That Have Banned (or heavily restricted) Cryptocurrencies
Between 2019 and 2020, more than $50 billion in Bitcoin was transferred from East Asian accounts to locations outside the region, with a large portion of this migration coming from China, according to Chainalysis. Bitcoin and other cryptocurrencies gave Chinese citizens a simpler means to buy foreign assets and get through China’s rigorous capital controls, which prohibit foreign currency transactions at $50,000 per year.
Concerns over capital flight also played a role in China’s 2017 decision to prohibit bitcoin exchanges. The stablecoin Tether (USDT), which offers stability by being ostensibly tethered to the US Dollar and is hence appealing for conversion to fiat money, has gained significant traction in China, according to Chainalysis.
Following the bitcoin prohibition, China’s “common prosperity” campaign focused on an inward-looking economic approach to control the economy and stop capital outflow. The ban aims to promote domestic wealth circulation and stop the wealthy from using offshore cryptocurrency exchanges to evade capital limits.
It may be difficult to enforce such a stringent prohibition on cryptocurrency transactions, and capital flight made possible by cryptocurrencies is likely to persist. This will eventually influence China’s economic environment.
Afghanistan banned cryptocurrencies in June 2022, roughly 10 months after the Taliban outfit took control of the nation.
The restriction was implemented after some Afghans used bitcoins to protect their riches and keep them safe from the Taliban. The use of cryptocurrencies to transfer money into and out of Afghanistan has grown due to the country’s isolation from the international banking system as a result of sanctions.
The Taliban wanted to keep control of the nation’s financial system by outlawing cryptocurrencies and preventing the use of digital tokens to go around established banking rules. It was a reflection of the group’s efforts to regulate monetary flows inside its recently conquered regions and to thwart actions that would jeopardize its leadership.
Additionally, Islamic financial norms had an impact on the Taliban’s view of cryptocurrency. They had said in February that they would research whether digital tokens might be permitted under Islamic banking principles as they looked at ways to boost the faltering economy of the nation. The latter prohibition, however, showed that they had chosen to forbid such acts under the given situation.
Since 2018, cryptocurrency use has been prohibited at the Qatar Financial Center. According to the nation, this was done to “ensure the safety of the financial and banking system”. The nation also outlawed bitcoin trading the same year, claiming it was highly volatile and vulnerable to hacking, and warned that businesses engaging in it would face sanctions.
The prohibition was also a result of lax compliance with the anti-money laundering and know-your-customer (KYC) laws. The Financial Action Task Force (FATF) is responsible for enforcing these laws around the world.
They call for banks and other financial service providers to confirm the identities of their clients and identify the sources of the money they are transferring domestically and internationally.
In fact, after the country’s first exchange, CoinMENA, which opened for business in May 2022, the Qatari Central Bank quickly issued a warning to its citizens about doing business with any unregulated financial institution.
Significant hazards linked with digital tokens were listed as the absence of supervision, control, and central regulatory authority, the potential for criminal behavior, and excessive market volatility.
The action was taken since complaints in Turkey mentioning cryptocurrencies considerably increased. Despite the ban, Turkish investors kept investing in cryptocurrencies and stocks after they sold some foreign exchange assets as a result of the central bank governor’s resignation, which caused the lira to weaken.
Between March 20 and 24, 2021, the amount of cryptocurrency traded more than tripled, from around $1 billion to $2.8 billion. The head of Turkey’s largest opposition party criticized the prohibition, pointing out that bitcoin users had not been consulted beforehand.
Although the rule primarily targeted electronic payment methods, some cryptocurrency sites claimed that consumers could still invest in virtual currencies with no trouble.
The Moroccan Exchange Office informed the public through a press release published on its official website that transactions carried out using virtual currencies are against the rules governing the exchange and are subject to the penalties and fines stipulated by the texts in effect.
The Office urged the parties involved to adhere to the exchange regulations, which state that money transfers to foreign companies must be handled through authorized middlemen and only with foreign currencies listed by the Bank Al-Maghrib.
The press release also highlights the dangers of using a virtual payment system that is not supported by a financial institution. The release concludes by stating that the Exchange Office is closely monitoring the development of virtual currencies in Morocco along with the Bank of Al-Maghrib and the Professional Grouping of the Banks of Morocco.
Since 2016, North Macedonia has been the first nation in Europe to outright outlaw the use of cryptocurrencies. It is not very hostile towards the use of this digital currency but wants to help itself to a safer stand unless and until a clear understanding of crypto arises out of experience.
But at the moment the ban remains with the nation being subtly eerie of the idea of putting crypto to regular use.
According to Nepal’s 1964 Act on Restricting Investment Abroad, the prohibition extends to cryptocurrency investments as well. The Foreign Exchange Regulation Act and FITTA both seek to encourage the use of foreign currency for trade, investment, and the transfer of technology. They have a total of five scopes.
The “Regulations of Foreign-Related Transactions” and “Use of Foreign Exchange Investment and Technology Transfer” scopes provide the biggest obstacles to cryptocurrency transactions and regulation. In essence, they are in favor of outlawing cryptocurrencies and their applications.
Several issues, including worries about financial crime, the speculative character of digital assets, and possible hazards to their financial systems, have contributed to certain nations’ choices to outlaw cryptocurrencies.
These causes include concerns about these countries’ financial systems. The necessity to establish control over financial activity and difficulties with capital flight have also been factors in the development of these regulatory measures.
However, the sector has a chance to more fluidly conform rules and address the issues identified by governments thanks to the cryptocurrency industry’s ongoing evolution.
As the technology develops, regulatory agencies and crypto enthusiasts may collaborate to find a balance between innovation and compliance.
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