Bank Indonesia has warned that cryptocurrencies may not be used for payments in the country.
The central bank published a press release on Saturday, stating that cryptocurrencies are not a “legitimate instrument of payment” in the country, as they do not comply with the 2011 currency act and are not issued by the Republic of Indonesia.
“Financial transactions conducted within the territory of the Republic of Indonesia, has to be fulfilled with Rupiah,” the currency act states.
As a result, the central bank said that payment firms are not allowed to make virtual currency transactions.
The central bank states:
“Bank Indonesia affirms that it forbids all payment system operator (principal, switching operator, clearing operator, final settlement operator, issuer, acquirer, payment gateway operator, electronic wallet operator, money transfer operator) and financial technology operators in Indonesia, both bank and non-bank institution, to process transactions using virtual currency, as stated in Bank Indonesia Regulation No. 18/40/PBI/2016 on Implementation of Payment Transaction Processing and Bank Indonesia Regulation No. 19/12/PBI/2017 on Implementation of Financial Technology.”
The warning makes no mention of cryptocurrency exchanges.
The news comes after the central bank revealed in early December 2017 that it was considering new regulations that would outlaw bitcoin transactions from 2018.
On the 20th of the same month, the bank issued a new regulation – No. 19/12/PBI/2017 on Implementation of Financial Technology – due to concerns over bitcoin’s potential use in terrorism financing, money laundering and drug trafficking.
In its latest warning, Bank Indonesia also warned “all parties” that buying, selling or trading cryptocurrencies come with “high risks,” as they are “highly volatile” and do not have backing from an authority, or underlying assets to support prices.
The note reads: “This means that virtual currencies are vulnerable to bubble risks, and susceptible to be used for money laundering and terrorism financing, therefore can potentially impact financial system stability and cause financial harm to society.”
With the new notice, Bank Indonesia joins a number of global central banks in issuing warnings as the prices of cryptocurrencies have soared amid what many in traditional finance have labelled a bubble. Countries including the U.K., India, Russia and more have recently cautioned investors and traders over the perceived risks involved in cryptocurrencies.
Bank Indonesia image via Shutterstock