News  •  Regulation

Kyrgyzstan: Bitcoin Payments Violate State Law

(@pete_rizzo_) | Published on August 4, 2014 at 18:03 BST

The National Bank of the Kyrgyz Republic, the central bank of Kyrgyzstan, has issued new statements confirming the use of bitcoin and other digital currencies as a form of payment is currently illegal under national law.

Issued this July, the notice states that the only legal tender in Kyrgyzstan is the national currency, the som (KGS), and that as such, any use of bitcoin for payment violates this policy. At press time, 1 KGS was worth $0.019.

The document reads:

"Under the legislation of the Kyrgyz Republic, the sole legal tender on the territory of our country is the national currency of Kyrgyzstan som. The use of 'virtual currency', bitcoins, in particular, as a means of payment in the Kyrgyz Republic will be a violation of the law of our state."

The central bank also moved to warn consumers about the potential risks associated with digital currency, confirming that no laws currently protect consumers who decide to purchase such assets.

"Virtual currency is regulated by no central government agency in the world, [...] and the lack of any [centralized institution] makes public or private regulation of system almost impossible," the document reads.

Research from the US Law Library of Congress and digital currency community resource BitLegal suggests this marks the first time the country's central bank has addressed digital currency use directly.

Risky investment

Echoing concerns raised by central banks internationally, the release characterized bitcoin as a risky asset that lacks sufficient security.

For example, the document noted that it is impossible for consumers to cancel transactions made in bitcoin once payment is transmitted, making the users susceptible to theft and scams.

The statements also took aim at bitcoin's price volatility, stating:

"The cost of 'virtual currency' is not tied to any currency or other asset, and, in fact, the formation of its cost is influenced by demand and supply for it, that creates high risks of exchange rate volatility and loss of value."

Legal risks

Although other countries have issued similar warnings, the Kyrgyz Republic's release may be notable in the tone it takes toward bitcoin use.

Building off its criticisms of bitcoin as an unstable payment tool, the government recommended that citizens "do not participate in the purchase, sale or exchange for other currencies or assets".

Doing so, the bank suggests, could also open digital currency users to legal liability, as the document states users "assume all the possible negative consequences of the possible violation of the legislation of the Kyrgyz Republic".

Data shows that the official Bitcoin-Qt wallet has only been downloaded around 1,000 times in the central Asian nation with a population just shy of 6 million, suggesting local digital currency use is not widespread.

Image credit: Radiokafka / Shutterstock.com

AsiaKyrgyzstan

Load Comments