Turkey Central Bank Bans the use of cryptocurrencies for payments

Turkey’s central bank has banned or called for the dis-use  of cryptocurrencies and crypto assets to purchase goods and services, citing possible “irreparable” damage and significant transaction risks in a move that cooled global bitcoin prices. In legislation published in the Official Gazette on Friday April 15th 2021, the central bank said cryptocurrencies and other such digital assets based on distributed ledger technology could not be used, directly or indirectly, as an instrument of payment. 

Turkey’s growing crypto market has gained momentum in recent months as investors joined a global rally in bitcoin, seeking to hedge against lira depreciation and inflation, which topped 16% last month.

Bitcoin was off nearly 3% at $61,490 versus the dollar at 0754 GMT after the Turkish ban, which was criticised by the main opposition party. In a statement, the central bank said crypto assets were “neither subject to any regulation and supervision mechanisms nor a central regulatory authority,” among other security risks. The Central Bank adds, “Payment service providers will not be able to develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance, and will not provide any services” 

“Their use in payments may cause non-recoverable losses for the parties to the transactions … and include elements that may undermine the confidence in methods and instruments used currently in payments,” the central bank added.

This week Royal Motors, which distributes Rolls-Royce and Lotus cars in Turkey, became the first in the country to say it would accept payments in cryptocurrencies. Globally, giants such as Apple, Amazon and Expedia also accept such payments.

Main opposition leader Kemal Kilicdaroglu slammed the decision as another case of “midnight bullying”, referring to President Tayyip Erdogan’s decision last month – announced in a midnight decree – to fire the central bank governor. “It’s like they have to commit foolishness at night,” he said on Twitter.

Turkish annual inflation is at a six-month high of 16.19%, well above a 5% target, and unemployment remains high, at 13.4%. Crypto trading volumes in Turkey hit 218 billion lira ($27 billion) from early February to 24 March, up from just over 7 billion lira in the same period a year earlier, according to data from U.S. researcher Chainalysis analysed by Reuters.

Cryptocurrency worth 23 billion lira was traded in the first few days after Erdogan shocked markets by ousting the central bank chief last month, the data showed, versus 1 billion lira in the whole of March 2020.

Last week, Turkish authorities demanded user information from crypto trading platforms. “Any authority which starts regulating (the market) with a ban will end up frustrated (since this) encourages fintech startups to move abroad,” said economist Ugur Gurses on Twitter. The legislation goes into effect on April 30th.