I. Definition of Cryptocurrency
Cryptocurrency refers to a form of digital or virtual asset that operates on decentralized blockchain technology and functions as a medium of exchange, a store of value, or a unit of account without reliance on a central issuing authority.
Despite its technological appeal, the Government of Nepal and the Nepal Rastra Bank (“NRB”) have, time and again, issued clear public positions declaring that cryptocurrency, in all its forms and uses, including trading, mining, investment, and payment, is prohibited within Nepal. Cryptocurrency is currently banned in Nepal, and NRB has consistently reiterated that such instruments are not legal tender, not recognized as foreign currency, and not permitted for investment or remittance purposes.
II. NRB’s Prohibitory Notices on Cryptocurrency
NRB has issued multiple public notices over the years declaring cryptocurrency-related activities illegal in Nepal. The following is a consolidated and formally presented summary of the key notices:
1) Notice dated 2074/04/29 (13 August 2017): Bitcoin Transactions
NRB’s Foreign Exchange Management Department issued a public notice clarifying that, under the Nepal Rastra Bank Act, 2058 (2002) and the Foreign Exchange (Regulation) Act, 2019 (1962), only NRB-licensed entities may engage in foreign exchange transactions. As Bitcoin had not been recognized as currency or money in Nepal, and reports had indicated individuals engaging in Bitcoin transactions through the internet, NRB declared that all Bitcoin-related transactions are fully illegal in Nepal and cautioned the public not to engage in such activities.
2) Notice dated 2078/05/24 (9 September 2021): Cryptocurrency Transactions, Use, and Mining
NRB reiterated that all forms of cryptocurrency transactions, usage, and mining are illegal under Nepali law. The notice emphasized that individuals had begun to promote and encourage cryptocurrency activities, exposing the public to risks of fraud and loss. NRB warned that anyone found conducting or facilitating cryptocurrency transactions or mining activities would face legal action under prevailing laws.
3) Notice dated 2078/10/09 (23 January 2022): Virtual Currency, Cryptocurrency, and Network Marketing
NRB expressed concern over schemes promoting high-return investments linked to virtual currencies, cryptocurrencies, funds such as “Hyper Fund,” and pyramid-based network marketing models such as Jocial, Crowd 1, and Solemax Global.
NRB clarified that Nepal has not recognized virtual currencies or cryptocurrencies as legal tender or foreign currency and warned that involvement in such schemes may lead to fraud, capital flight, and economic harm.
All Nepali and foreign individuals residing in Nepal, and Nepalis residing abroad, were cautioned that engagement in such activities would result in legal action.
4) Notice dated 2079/04/30 (15 August 2022): Cryptocurrency, Stablecoins, Network Marketing, Hyper Fund
NRB reaffirmed earlier notices and clarified that cryptocurrencies (including stable coins) have no legal tender status, government backing, or regulatory protection in Nepal.
The notice highlighted risks of money laundering, terrorist financing, tax evasion, price volatility, and capital flight associated with cryptocurrency and stable coin activities, making such transactions illegal.
The notice further stated that any involvement, use, investment, membership, ownership, transfer, exchange, mining, or facilitation, would attract legal action under existing laws.
5) Notice dated 2079/12/20 (3 April 2023): Cryptocurrency, NFT, Digital Assets, DeFi
NRB’s most recent notice expanded the scope of prohibition to include Non-Fungible Tokens (NFTs), Digital Assets, Decentralized Finance (DeFi) activities, and all forms of virtual assets that may enable offshore investment or undermine national foreign exchange controls.
NRB emphasized that none of these instruments have legal recognition as currency or foreign exchange in Nepal and that they pose inherent risks, including capital flight, anonymity-based financial crime, consumer harm, and destabilization of monetary and financial stability.
NRB clarified that any individual, firm, company, institution, or agency inside Nepal, or Nepalis abroad, engaging in such activities will face prosecution under the Foreign Exchange (Regulation) Act, 2019 (1962) and the Act Restricting Investment Abroad, 2021(1964).
III. NRB’s Risk Assessment on Cryptocurrency
NRB’s Foreign Exchange Management Department has published an extensive assessment outlining key risks associated with cryptocurrency, of which few are listed below:
1) Macroeconomic Instability
Cryptocurrency transactions occur outside the regulated financial system and do not involve financial intermediaries. Because these transactions are speculative and lack institutional safeguards, widespread adoption could undermine macroeconomic balance.
2) Undermining Monetary Policy
Cryptocurrency circulation may lead to de-facto “dollarization” of the economy. Since cryptocurrencies are issued privately and outside NRB supervision, their usage would weaken central bank control over money supply, interest rates, and monetary policy transmission.
3) Pressure on Foreign Exchange Reserves
Cryptocurrencies are not recognized as reserve currency. Their use may reduce foreign exchange inflows, encourage remittances to be diverted into unregulated digital assets, and facilitate capital flight, all of which could harm Nepal’s already constrained foreign exchange reserves.
4) Money Laundering and Terrorism Financing Risks
Cryptocurrency transactions allow anonymity, obscured identities, and cross-border transfers without regulatory oversight. FATF has highlighted ML/TF risks arising from anonymity-enhancing features and decentralized systems. International studies show billions of dollars in illicit activity linked to cryptocurrencies.
5) Investment Security Risks
High-profile collapses such as FTX, Terra USD, and LUNA demonstrate extreme volatility and the absence of investor protection. Cryptocurrency investments carry substantial risk of total loss.
6) Fraud and Tax Evasion Risks
Cryptocurrency enables illegal activities including fraud, tax evasion, and unregulated financial flows. Studies cited by the Financial Stability Institute show tens of billions of dollars associated with illicit crypto addresses globally.
7) Conflict with International Regulatory Cooperation
International bodies including the IMF and UNCTAD have warned against recognizing cryptocurrency as legal tender. Adoption or tolerance of cryptocurrency could place Nepal in conflict with international financial cooperation frameworks.
8) Loss of Control over Foreign Exchange Regulation
Nepal maintains strict controls over foreign exchange transactions. Cryptocurrency transactions, being borderless and unregulated, could circumvent these controls and weaken NRB’s ability to manage foreign exchange.
IV. Legal Penalties for Cryptocurrency Activities in Nepal
Nepal imposes stringent penalties for engaging in cryptocurrency-related activities. The key legal consequences under prevailing laws are as follows:
1) Nepal Rastra Bank Act, 2058 (2002)
- Confiscation of digital assets or property involved.
- Fine up to three times the value of the cryptocurrency transaction.
- Imprisonment up to 7 years, or both.
2) Foreign Exchange (Regulation) Act, 2019 (1962)
- Confiscation of foreign digital assets or currencies.
- Fine up to three times the value of the transaction.
- Imprisonment up to 7 years, or both.
- Failure to pay fines results in an additional 4 years’ imprisonment.
- For amounts exceeding NPR 10 million, an extra 3 years’ imprisonment is imposed.
3) National Penal Code, 2074 (2017)
Where crypto-related activities amount to betting or gambling:
- First offence: Up to 3 months’ imprisonment or NPR 30,000 fine.
- Second offence: Up to 1 year imprisonment and NPR 50,000 fine.
- Subsequent offences: Additional 3 months’ imprisonment and NPR 10,000 fine for each repetition.
4) Electronic Transactions Act, 2063 (2008)
Cryptocurrency users may face cybercrime charges for unauthorized or fraudulent digital financial activities, including online scams, hacking, or unlicensed fintech operations.
Penalties include imprisonment, fines, and potential long-term prohibitions on digital activities.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice, advertisement, personal communication, solicitation or inducement. No attorney-client relationship is created through this content. Gandhi & Associates assumes no liability for any consequences resulting from actions taken based on information contained herein.
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