Saturday, 13 July, 2024

Discourse On Cryptocurrency In Nepal

Uttam Maharjan

Cryptocurrency, a digital currency, is banned in Nepal. Nepal Rastra Bank has issued a public notice warning people against engaging in cryptocurrency transactions. Despite the ban, some people are engaging in cryptocurrency deals. The Cryptocurrency Payment Gateway Triple A of Singapore has issued a report on cryptocurrency users across the world. According to the report, there are around 424,000 Nepalis engaged in cryptocurrency transactions. However, the government has no data on cryptocurrency users because people secretly engage in such transactions. Nepal Rastra Bank has banned not only cryptocurrency transactions but also digital networking marketing.

Cryptocurrency is a virtual currency based on the internet. The cryptocurrency is a free currency, meaning it is neither owned nor controlled by any country. It is a digital currency, for which cryptography is used. It is based on algorithm and block-chain technology is used to produce it.

There are hundreds of cryptocurrencies in the world. Among them, the bitcoin has become the most popular. The bitcoin came into existence in 2009. When it first emerged, its value was as good as zero US dollars. Its value was less than one US dollar even one year later in 2010. But its value soared so high in a short span of time that it was able to attract many people around the world. Now, its value is around US$44,000. Owing to its rising value, those engaged in bitcoin transactions have made a huge profit.

Investments in cryptocurrency are lucrative. That’s why more and more people are attracted to cryptocurrency. Since it is a digital currency, fraud cases may be relatively low. As most cryptocurrency is available in wallets, it is easier for people to engage in online shopping and financial transactions. Cryptocurrency may be used to buy goods and services online. Because of the online facility, conducting cryptocurrency transactions is much easier. As there is no regulator to control cryptocurrency, the possibility of the currency going down in value is slim.

There is no capital control regarding cryptocurrency. So cryptocurrency can be bought and sent abroad at a profit. One of the greatest benefits of cryptocurrency transactions can be enjoyed by those who want to conceal sources of money earned legally or illegally. As there is a verification mechanism, cryptocurrency is a secure medium of account. Cryptocurrency has no physical existence, which is one of its disadvantages. It cannot be printed. Nor can it be deposited with banks. There is no regulator for the control of cryptocurrency. So its value often fluctuates. This may make investments in it risky.

There is a danger of cryptocurrency to be used for illegal activities such as for the purchase of arms and ammunition, drug deals or black-marketeering. There is also a risk of hacking. Although the block-chain technology is deemed to be fully secure and so impregnable for hackers, hacking may be a risk as there is no owner. Moreover, there is lack of a mechanism for rectifying wrong transactions. Should any transactions go wrong, the transactions cannot be rectified, thus resulting in over-payment.

Cryptocurrency is legal in some parts of the world and illegal in some other parts. It is legal in countries such as the US, European Union countries, Canada and Australia. In some other countries, including Nepal, it is illegal. There are other countries which keep it in the grey zone. In other words, it is neither formally banned nor recognised as a legal currency.

India has recently announced through a budget speech that it will issue its own digital currency. It is also mentioned in the budget that a 30 per cent tax will be imposed on the income from cryptocurrency transactions. Cryptocurrency was banned in India till two years ago when the Supreme Court lifted restrictions on its transactions. India will be the first country in South Asia to issue digital currency. China issued its own cryptocurrency called e-CNY (electronic Chinese yuan) in 2020. Likewise, Japan issued its central bank digital currency in 2021.

With the announcement by India that it will go for its own digital currency from the fiscal year 2022/23, a discourse on cryptocurrency may start in Nepal. Nepal and India are close neighbours sharing around 1,800 kilometres of open borders between them. Any developments in India may have an impact on Nepal, too. When India issues its own digital currency, there may be an attraction to it on the part of some Nepalis given that hundreds of thousands of Nepalis are already carrying on cryptocurrency transactions.

There may be pros and cons regarding legalising cryptocurrency in Nepal. There are both advantages and disadvantages of cryptocurrency. We are living in the digital age. It would be prudent to take advantage of digital technology. The government has also come up with the idea of making the country a digital Nepal. Digital technology is also gradually being adopted in Nepal. The European Central Bank has defined any digital currency as virtual currency. The International Monetary Fund, European Central Bank and Basel have acknowledged that there is no alternative to digital currency. In fact, technology cannot be controlled. We should keep abreast of emerging technology to reap benefits from it.

Healthy discourse
It follows that a healthy discourse on cryptocurrency needs to be started among Finance Ministry officials, NRB officials, experts and other stakeholders. Like India, the government can also impose a tax on income from cryptocurrency transactions. This will increase the government revenue. Even now, hundreds of thousands of people are in the cryptocurrency business. They can all be brought into the tax net.

If cryptocurrency transactions prove to be harmful for the economy, strict tabs need to be put on such transactions. And those illegally trading in cryptocurrency should be tracked and all the transactions should be brought to an end. But this seems to be easier said than done because digital transactions are hard to track. For this, a high-level robust mechanism should be in place.

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.