The governor of the central bank of Indonesia believes that cryptocurrencies have the potential to pose systemic risks, but can improve financial inclusion.
Speaking at a G20 event in Bali, Governor Doni Primanto Joewono said that a regulatory framework for cryptocurrencies is critical to ensure that their inclusion in the financial system does not pose systemic risks. The governor admitted that crypto provides a way to improve the efficiency of the current financial system.
He also stated that digitization in the financial sector during the COVID-19 pandemic helped advance the use of crypto, which the Indonesian government currently treats as commodities. He added that the central bank is exploring a central bank-issued digital currency (CBDC). It plans to release a white paper on the digital rupiah later this year.
In a note from the Bank for International Settlements in 2022, Indonesia’s central bank announced its CBDC would be geared to wholesale and retail applications. Information on the architecture, underlying technology, and cross-border partnerships has not yet been revealed.
Crypto banned by religious council
Last Nov, the central bank proposed a CBDC as a way to “fight” haram cryptocurrencies, which are banned as forms of payment. The central bank and finance ministry consult with the National Ulema Council (MUI), a religious body enforcing Shariah law, on issues of Islamic finance.
The MUI last year declared crypto as haram for Muslims, citing elements of gambling, uncertainty, and harm, effectively banning adherents from participating. Indonesia has the world’s largest Muslim population. The MUI said that only if cryptocurrencies can be shown to have an obvious benefit will Shariah law permit participation.
Nevertheless, the government has allowed crypto assets to be traded alongside commodity futures products and regulated by the trade ministry. To protect retail investors, the government launched its own cryptocurrency exchange offering four Indonesian Rupiah trading pairs.
Seventeen other companies are registered with the Commodity Futures Trading Commission (BAPPEBTI). Indodax, a prominent player, reported a customer base of five million in 2022, while Tokocrypto, another major player, had two million members at the end of 2021.
Crypto taxes in Indonesia
In April, a government tax official announced a value-added tax on crypto transactions and a 0.1% capital gains tax. Value-added tax is levied because of cryptocurrency’s classification as a commodity rather than a currency. The Financial Service Authority has banned financial services companies from selling crypto assets.
Yesterday, the Financial Stability Board of the Group of 20 economies, of which Indonesia is a part, said it would propose new rules for cryptocurrencies in Oct. The FSB has no authority to make laws, but all members agree to implement regulation principles.