On March 10, 2021, eSatya hosted its 18th meetup on the topic “Crypto Regulations in Nepal”. With two dignified personas as the speakers for the meetup, the session was moderated by Mr.Santosh Shrestha, CEO of Rumsan Group of Companies.
Through this blog, I present you the summary of the session in 3 parts. This blog will cover up the following issues discussed in the meetup:
- Challenges for Nepal Rastra Bank in implementing cryptocurrencies in Nepal
- Research carried out by Nepal Rastra Bank on the Central Bank Digital Currency (CBDC)
- Nepal Rastra Bank’s Scope of new policies for cryptocurrencies
Nepal Rastra Bank has imposed a ban on the use of cryptocurrencies like most of the countries across the world. Mr. Thapa talks about several reasons for the ban, first being the Perception. The issue of perception on cryptocurrencies based on blockchain is viewed as activities associated with hackers, frauds and speculators.
The primary reasons for imposing a ban on the use of cryptocurrencies are:
- To safeguard the interest of the general people.
- Consumer protection form the potential frauds
- Because cryptocurrencies are speculative assets and people can make speculations to benefit themselves by devaluating or increasing the value of the same
- The infancy stage of the technologies such as blockchain that regulates the control of bitcoins and other cryptocurrencies
- The slow and cumbersome process of producing cryptocurrencies
- Difficult integration with the legal system
- Lack of awareness among the people about the cryptocurrencies
- Issues of taxation as there are no benefits currently but the possibility of frauds and tax evasions
- The volatility of bitcoin as there is no stable store of value
- The confusion is whether cryptocurrencies are currencies or commodities.
- Regulatory issues as the global community have not adopted the world-crafted vision and regulations.
- Issue of cross-border character to prevent money laundering and financing.
Mr. Thapa talked about how very few countries have adopted the use of cryptocurrencies such as Russia and the USA. Meanwhile, Nepal has adopted the wait and see approach. Nepal has not made its currency convertible for capital transactions yet. However, there is a great prospect of using blockchain technology to facilitate financial inclusion with proper awareness and infrastructures development. Blockchain technology has the potential to reduce financial intermediation costs. Likewise, blockchain-based supply chains can be instrumental in promoting the agricultural market in Nepal.
Talking about the central bank’s research on Central Bank Digital Currency (CBDC) Mr. Thapa stressed how crypto is the future. “It is the future for the global community”, he said. Cryptocurrencies are an important component of the digital economy. The evolution of the digital economy will reach a complete stage only when digital currencies replace the current fiat money. Artificial Intelligence (AI), cryptocurrencies and direct financing are the future of the economy, he further stated.
With the emergence of the concept of cryptocurrencies, we cannot ignore how we lack the proper infrastructure and adequate knowledge that is required for its effective implementation. As cryptocurrencies are based on DLTas as opposed to a centralized system of payments, many countries are researching this issue. Mr. Nara Bahadur Thapa, who himself is a person who is extremely research oriented has pointed out several research issues that we can explore the studies on. They are:
- The function of money as the question is to what extent cryptos will perform the medium of exchanges, store of value, unit of account and standard of deferred payment.
- Nature of bitcoin: Currently, bitcoin behaves more like a commodity. The value of bitcoin is determined by market expectations whereas the value of fiat money is anchored by monetary policy.
- Payment shift: From an account-based payment system to a token-based system, from credit to commodity money how can the transition be smoothened?
- Role of bank intermediation
- Safeguarding the financial sector stability without the Lender of Last Resort (LOLR) facility
- Role of monetary policy
- Issues of liquidity and intervention currencies
- Acceptability and role of the private sector currencies (Tokens) work as they are not state-guaranteed means of payments
- The new paradigm shift reducing or eliminating the role of central banks with the emergence of the alternative means of payment and unit of account
- Macroeconomic stability issues, deflation risk, business cycle issue, ability to respond to temporary shocks
These are challenging issues, not studied well even at the global level. Nepal is awaiting the global community to settle these issues.
eSatya team on behalf of the audience had presented a query to Mr. Thapa, “Is NRB looking into new policies for crypto?” He answered that Nepal is in the initial stage of developing its economy currently focusing on the development of e-commerce. He added on how the current COVID-19 pandemic has forced Nepal to accelerate the process of e-commerce. Today, the government agencies are in the stage of developing their websites and digitizing their internal working processes and the same is the case for the private sector. Both the government and the corporate sector are yet to link their services to the general public digitally. Biometric cards are yet to be issued in Nepal. The focus of NRB is on developing initial infrastructure for the digital economy. For the same, the central bank introduced Real Time Gross Settlement (RTGS) and is currently working on a national payment switch.
Hence, we are grateful that the central bank is concentrating its efforts towards developing infrastructures that are essential for the smooth and safe functioning of the country’s monetary policies and also looking out to carry research on the sectors such as cryptocurrencies.
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