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Owning virtual currencies is very risky and inherently speculative, Indonesia’s central bank says
Indonesia says digital tokens are prone to forming asset bubbles and tend to be used as method for money laundering and terrorism funding, so it has the potential to affect financial-system stability and harm the public. Photo: Reuters
Jakarta: Bank Indonesia is taking a firm stance against cryptocurrencies as it urges all parties to refrain from owning, selling or trading the tokens.
“Owning virtual currencies is very risky and inherently speculative,” the central bank said in a statement on Saturday. The digital tokens “are prone to forming asset bubbles and tend to be used as method for money laundering and terrorism funding, so it has the potential to affect financial-system stability and harm the public.”
The move highlights the challenge faced by regulators as they seek to manage potential risks from the global cryptocurrency mania while lacking the authority to prohibit its use. South Korea’s central bank banned employees from trading cryptocurrencies on the job last week, while China has outlined proposals to discourage bitcoin mining, the process by which the virtual currency enters circulation.
Bank Indonesia’s statement follows its earlier ban on financial technology companies using cryptocurrencies for transactions in January, which doesn’t prohibit trading of the digital tokens itself. While the authority reiterates an existing ban on payment-system providers under its watch from processing transactions using digital currencies, PT Bitcoin Indonesia, a virtual-currency exchange that boasts more than 940,000 members, doesn’t fall under its supervision. Bloomberg
central bank has issued a fresh warning about trading in cryptocurrencies like bitcoin because of the risk of losses to the public and even a potential threat to the stability of the financial system.
Bank Indonesia (BI) has previously said that cryptocurrencies were not recognized as a legal medium of exchange, so that they could not be used as a means of payment in Indonesia.
"The ownership of virtual currencies is high risk and prone to speculation because there is no authority who takes responsibility, there is no official administrator and there is no underlying asset to be the basis for the price," BI spokesman Agusman said in a statement issued late on Friday.
He said that virtual currencies could also be used in money laundering and terrorism funding, and due to all these factors could have an impact on the stability of the financial system and causes losses for society.
"(Cryptocurrency) is not a legal medium of exchange. We remind (people of) its risks. When the risks occur, the losses will be borne by the public. We are obliged to protect consumers and protect them from a bubble," Agusman said by telephone on Saturday.
Asked whether such statements from authorities could stir panic among those who had already invested in cryptocurrencies, he said: "They didn't consult with us when buying....please help us make the people understand."
Indonesian authorities have been stepping up their warnings and last month BI issued a regulation banning use of cryptocurrencies by financial technology companies involved in payment systems, and said it is examining whether there's a need to regulate trading on virtual currency exchanges.
Institutions that violate this rule are subject to fines and may even forfeit their operating permits.
Last year, the Financial Services Authority (OJK) closed down four investment funds – Dunia Coin Digital, Dinar Dirham Indonesia, Tracto Venture Network Indonesia and Purwa Wacana Tertata – for accepting money from the public to invest in cryptocurrencies.
CONCERNS FOR MACRO-ECONOMIC STABILITY
Bank Indonesia insists that the Rupiah should remain the only legal currency in the country and, from the beginning of this year, fintech companies have been banned from using digital currencies.
For the purposes of the legislation, fintech has been defined to include banks, electronic wallet providers, payment providers and all other financial services.
There is a concern that allowing cryptocurrency activity will bring wider inflationary pressures that Bank Indonesia will then have to respond to. The Assistant Governor of the bank, Dody Budi Waluyo, said this week that cryptocurrencies “may pose a risk and the bank may have to inject liquidity”, adding that such a move would “affect the market and stability.”
Currently, individual investors are still allowed to hold and trade cryptocurrencies, although the level of participation in crypto-based currencies and tokens is disproportionately small, likely as a result of the authorities’ repeated warnings on the subject.