Turkey has barred the use of cryptocurrencies to purchase goods and services in an effort to protect consumers against volatility and illegal activity, threatening a boom in the country’s fast-growing digital money markets. The central bank published a regulation in its official gazette on Friday that prohibits the direct and indirect use of crypto assets as payments.
The anonymous use of virtual money “may cause non-recoverable losses” and “undermine the confidence in methods and instruments used currently in payments”, a statement from the bank said. Turkey has the largest volume of cryptocurrency transactions in the Middle East and ranks 29th out of 154 countries worldwide, according to a report last year by Chainalysis, a US-based blockchain analysis company.
Turks have poured money into digital money in recent years to hedge against double-digit inflation and a 34 per cent drop in the value of the lira against the dollar since the start of 2019. The lack of regulation and taxation has also made the asset popular, and the trend mirrors a global surge in crypto investments.
The new measures come during a time when many countries are grappling with how to regulate digital currencies, which often fall between different national watchdogs and stretch through international boundaries. In the US, for example, tax authorities have this year sought information from exchanges about users executing large transactions. Bitcoin, the word’s dominant digital coin, hit a record of almost $65,000 earlier this week, while Coinbase, one of the biggest crypto exchanges, listed on US public markets and is now valued at about $64bn.
The Turkish boom poses “significant risks” when crypto is used for payments, the central bank said, citing the lack of regulatory oversight, excessive volatility, the potential for use in illicit activities, theft of digital wallets and the irrevocable nature of transactions required. The ban, the first of its kind in Turkey, comes after the financial authorities signalled regulations were in store. Last month the Treasury ministry said it was concerned about the level of growth.
The regulation does not prohibit ownership of crypto assets for investment but the new rules are unclear about when a purchase of these assets constitutes a payment, said Wolfango Piccoli, co-president of Teneo Intelligence. Banks are excluded, which means users may still transfer money from their bank accounts to crypto exchanges. “Turkish authorities have been trying to keep a tight grip on the payment ecosystem for some time,” he said, pointing to the five-year ban on PayPal, the US-based online payment system.
President Recep Tayyip Erdogan has urged Turks to sell their vast foreign currency holdings to prop up the lira, particularly after he sacked the central bank governor last month and sparked a sell-off in financial markets over worries about his meddling in monetary policy.
The latest central bank move “may be aimed at protecting the value of the national currency and directing investment to the bourse”, said Enver Erkan, chief economist at Tera Securities in Istanbul, referring to the country’s regulated Borsa Istanbul financial exchange. “Crypto has emerged as a very serious alternative because [Turkish investors] are afraid of the stock market, the exchange rate is unpredictable and gold is expensive,” he added.