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Regulatory Compliance for Cryptocurrency in Nepal: A Call for Innovation

Kathmandu, Nepal - The recent crackdown on cryptocurrency activities by the Nepal Rastra Bank (NRB) has sparked concerns about stifling innovation and entrepreneurship in the country’s financial landscape. On August 13, 2017, a nationwide ban on Bitcoin was announced, citing Clause 12 of the Foreign Exchange (Regulation) Act, 2019 BS as its legal foundation. The NRB’s decision to declare all activities related to Virtual Currency, Cryptocurrency, and Network Marketing illegal in January 2022 has resulted in multiple arrests.

The Concerns

While the government’s actions are driven by valid concerns about fraud, illicit activities, foreign reserves, remittance outflows, and tax revenue, experts argue that such stringent measures can impede innovation and growth. The decision was made without a thorough understanding of the subject, laying the groundwork for missed opportunities and inhibited growth in Nepal’s financial and technological landscape.

History of Resistance to Innovation

The Nepali government has a history of resisting new technologies, hindering innovation. A striking parallel can be drawn from the past when private radio stations were not allowed to operate due to concerns about national security and unity. However, after mounting pressure from the media and civil society, a significant turning point occurred in 1993 when a new broadcast act was passed, allowing private radio stations to operate legally.

The case of ride-sharing platforms like Tootle and Pathao is another example of resistance to innovation. When these platforms disrupted the transportation market, the Department of Transport Management hastily declared them illegal. Similarly, the ban on cryptocurrencies like Bitcoin resembles this pattern of resistance.

Legalizing Cryptocurrency

Legalizing cryptocurrency is a complex issue, influenced by factors such as financial stability, consumer protection, money laundering prevention, and terrorist financing curbing. However, it also holds promise for increased financial freedom, greater inclusion, reduced corruption, and enhanced innovation.

The Way Forward

To capitalize on this potential, the government must come up with well-grounded regulations before the bandwagon passes by. Instead of entirely shutting the door on cryptocurrency, the Nepali government should conduct in-depth research by analyzing existing knowledge and infrastructure, exploring the use of cryptocurrencies within Nepal’s demographics, literacy rates, and economic status.

Engaging Stakeholders

Engaging in discussions, conducting a cost-benefit analysis with financial experts, technology specialists, and policymakers would provide a more comprehensive understanding of the potential benefits and address concerns when it comes to cryptocurrency adoption in Nepal.

Embracing Progress

It is high time for Nepal’s government to embrace the ever-evolving financial landscape. Outdated and conservative regulations that no longer align with today’s dynamic financial environment need to be reformed. Hesitating to adopt new technology not only signifies resistance to progress but also carries the risk of Nepal falling behind in the global race for economic and technological advancement.

Lessons from Neighbors

Nepal has an opportunity to create regulatory frameworks that govern the use of new financial technologies and promote their responsible adoption within its economy. Learning from SAARC neighbors, such as India, Bhutan, and the Maldives, which have embraced cryptocurrency, can provide invaluable insights and experiences to shape Nepal’s approach to modernizing its financial sector.

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