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Indonesian Central Bank Prohibits Cryptocurrency as Payment Tool

·2 min read

The governor of Indonesia’s central bank will prohibit the use of cryptocurrencies as a payment tool, in yet another move by the country to rein in the crypto market.

Indonesia’s central bank, the Bank Indonesia, will prohibit the use of cryptocurrencies as a payment tool, according to Governor Perry Warjiyo. He made the announcement during a virtual seminar on June 15. He also said that crypto would not be allowed for “other financial services tools,” though it was not explicitly stated what these tools were.

Governor Warjiyo said that the assets were not recognized as a means of payment by the constitution or by central bank laws, and expected financial institutions to follow this policy accordingly. To that end, the central bank will mobilize teams to ensure that institutions comply with the ban.

The country is currently working on a broad cryptocurrency framework, having said that the crypto market breeds the development of illegal platforms. Recently, it stopped 26 investment businesses/peer-to-peer lending platforms because they were unlicensed. This included three crypto platforms.

The head of the task force behind that crackdown, Tongam Lumban Tobing, also said that Binance was illegal in the country because it did not have a license. This does not bode well for the cryptocurrency market in Indonesia, which is likely to experience even more stringent actions from regulators.

However, it does not appear to be the case that the government will completely outlaw cryptocurrencies, as reports have said that it will tax the trading of cryptocurrencies. The asset class is allowed to be traded as commodities.

Like other countries, the government warns that cryptocurrencies are a highly volatile asset class with little backing to them. Governments are ostensibly concerned about investor protection due to these reasons.

Cryptocurrency regulation now in full swing

Several governments are now banning cryptocurrencies from being used as means of payment, though they are not outlawing the holding of the assets. This comes at a time when central bank digital currencies (CBDC) are becoming the main focus of governments and central banks, who wish to maintain sovereignty on legal tender.

El Salvador remains one of the notable exceptions, with President Nayib Bukele sending a bill to the country’s congress to recognize it as an official currency. The bill has since passed, too much fanfare in the crypto world — but the International Monetary Fund (IMF) sees this as being problematic legally and economically.

Meanwhile, Indonesia is preparing the development of its own CBDC, with a focus on speeding up digital payments. It now joins Canada, China, France, Japan, and several other nations in this bid to modernize financial systems.

Global financial bodies like the Bank for International Settlements (BIS) have also issued warnings about cryptocurrencies while espousing CBDCs. It has called for global cooperation in the use of CBDCs, which is a novel idea that will take time to fully implement.