The central bank is curbing forms of crypto-currency activity as prices continue to set records.

Indonesia will ban financial technology firms from using digital currencies on their platforms, highlighting the range of different regulatory approaches across the world in this space. Meanwhile, bitcoin continues its astonishing ascent, clearing over $17,000 last Thursday before retreating (source: Coindesk).

A report in Bloomberg, quoting Bank Indonesia Deputy Governor Sugeng, said Indonesia’s curbs on digital currencies, taking effect from the start of January next year, will not, however, apply to trading of digital currencies.

The ban on use of virtual currencies for transactions is part of a new set of rules for fintech companies, which mandates digital payment system providers should seek a central bank license, was quoted as saying. “Virtual currency is very volatile, according to our observation and nobody can guarantee its movement because there is no basis for it,” Iwan Junanto Herdiawan, head of the fintech office at Bank Indonesia, was quoted as saying. “Nobody can monitor and be responsible for it either. So the risks are high and can be widespread.”

The report said Indonesian policymakers are worried about the potential impact of cryptocurrencies on the broader financial system. The central bank has also reportedly raised concerns about the possible use of cryptocurrencies such as bitcoin to fund terrorism or as a payment system that could be used by drug traffickers.

As reported here in November, neighbouring Asian nation Malaysia is crafting a regulatory structure for crypto-currencies such as bitcoin in a bid to defend itself against money laundering and terrorism financing threats. Central bank governor Muhammad Ibrahim reportedly told a summit that from next year those converting crypto-currencies into fiat money will be labelled “reporting institutions” under Malaysia’s Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act. 

Bitcoin and other crypto-currencies have a tarnished reputation due to their ability to conceal the identity of the holder, raising red flags over know-your-client (KYC) and anti-money laundering procedures.

Countries vary in how they regulate bitcoin and other crypto-currencies. Brazil, Bulgaria, Denmark, Finland, Italy, Norway, Slovenia, Sweden and the UK - have stopped short of regulating bitcoin but have imposed taxes on it. (See story here.) Regulators in multiple jurisdictions are curbing, or in some cases banning, initial coin offerings. China, for example, in September outlawed initial coin offerings (ICOs), used by crypto start-ups to raised funds to grow their business.

Bitcoin was born in 2009 during the fallout of the financial tsunami. Since the start of this year, its value has rocketed more than 1,500 per cent. Last week, Deutsche Bank Wealth Management said crypto-currencies could become an asset class so long as regulations and security are tight.