Bangladesh recently banned the use of bitcoins. This action makes the country the latest in a string of nations that have taken steps to restrict or otherwise ban the use of bitcoin and other digital currencies.
Brief Profile of Bangladesh
Bangladesh is a South-Asian country on the Bay of Bengal that borders India to the east, south and west, and has Myanmar (formerly Burma) as its south-eastern neighbor. It is classified as a developing country with a rapidly growing market-based economy. Bangladesh is the world’s eighth most populated country with 150 million people calling it home.
It is also considered as the birthplace of microfinance thanks in part to one of its most famous sons Muhammad Yunus, a Nobel laureate who won the 2006 Peace Prize for his work in developing microcredit and microfinance through the Grameen Bank.
Bangladeshi Central Bank Gives Reasons for the Ban
In a statement the Central Bank of Bangladesh cited concerns over bitcoin’s lack of “a central payment system” which could lead to people being “financially harmed”. It invoked the provisions of the Foreign Currency Control Act of 1947 and the Money Laundering Control Act of 2012 and added that trading in bitcoin and other digital currencies could lead to punishment.
The ban comes as an enforcement of sections 4,5 and 8 of the 1947 law that regulate trading in foreign currency without authorization or general permission from the central bank. Section 5 severely restricts payments done outside Bangladesh, which definitely affect bitcoin payments.
Money Laundering in Bangladesh
The Money Laundering Control Act of 2012 is designed to bring Bangladeshi laws on money laundering up-to-date, and to domesticate the provisions of the UN Terrorist Financing Convention. Its Section 2(b) on definitions includes:
“a financial service in which the service provider receives currency, cheques, other financial instruments (electronic or otherwise) in one location, and provides the beneficiary with the equal value in currency or financial instruments or any other means in a different location;”
Under the provisions of the act, a person conviction can attract a sentence of up to 12 years in jail in addition to forfeiture of the laundered proceeds to the state and other fines.
Money laundering has been a problem in Bangladesh. An article in the Money Laundering Bulletin quoted UNDP figures that put overall capital flight at US$ 32 billion. In one year alone the deposits held by Bangladeshi citizens in Swiss Banks grew to US $415 million.
The concept known locally in Bangladesh as hundi or hawala has seen some countries such as Pakistan and Sri Lanka blacklisted by the Financial Action Task Force or FATF, for failing to provide adequate safeguards against money laundering. Bangladesh itself has been grey-listed by the FATF previously, but as a result of enactment of tougher money laundering laws, the country is no longer subject to the FATF process.
Ban to affect Bitcoin Foundation Bangladesh’s Outreach Programs
The latest ban is likely to slow down the uptake of bitcoin in Bangladesh. It is noteworthy that Bitcoin Foundation Bangladesh became the first affiliate group of the Bitcoin Foundation in Asia. Speaking after the affiliation, Monir Sazeeb, president of the Bitcoin Foundation Bangladesh said that the focus in the country would be on providing education so as to encourage bitcoin adoption in the country, through the use of among other tools content in the country’s official language Bengali.
The prohibition on the use of bitcoin will suspend those plans for the foreseeable future. As at the writing of this article, none of the Bangladeshi affiliate had responded or commented publicly on the ban. However Roger Ver, advisor to the Bitcoin Foundation Bangladesh put the blame on “politicians” in his Twitter post.
Benefits of Bitcoin to the Bangladeshi Economy
The use of bitcoin could play a huge role in Bangladesh, especially in the area of remittances. As is the case with other countries in Asia, Bangladesh relies heavily on remittances from its huge diaspora that works abroad and sends money home. The country’s income from diaspora remittances stood at approximately US$ 14.5 billion in 2013. Many Bangladeshi migrants work in other parts of Asia and the Arabian Gulf. Agriculture is another growing sector in Bangladesh that could also grow with the use of Bitcoin.
Worldwide a number of countries have moved to ban the use of Bitcoin. Bolivia’s central bank banned bitcoin early in 2014 with Ecuador following suit a short time afterwards. Russia has already announced plans to ban Bitcoin in 2015. While it is still too early to tell what will become of this move toward restricting or banning bitcoin in the coming years, it is possible that these actions are just startup problems of an emerging digital currency order which may eventually have bitcoin and other cryptocurrencies right at the heart of the global financial system.
Images from Shutterstock.