Turkey will bar consumers and businesses from exchanging payment for goods and services in Bitcoin and other cryptocurrencies. In legislation (six articles) published in the Official Gazette overnight, the Central Bank of Turkey (TCMB) determined that cryptocurrencies and other such digital assets based on distributed ledger technology cannot be used, directly or indirectly, as an instrument of payment. The curbs will be effective from 30 April.
Article 3(2) and 3(4) of the regulation prohibits direct or indirect use of crypto-assets (“Krypto Varlik” in Turkish) in payments and provision of services directed to such uses. Article 4 prohibits payment service providers from developing business models involving crypto-assets with a broad scope. Payment and electronic money institutions are also banned from acting as intermediaries again in a wide range of crypto-involving transactions.
Banks are excluded from the regulation, which means users would still be able to deposit Turkish Lira on crypto exchanges using wire transfers from their bank accounts. At the same time, payment providers will be unable to provide deposit or withdrawal services for crypto exchanges.
Payment providers and digital wallets have been widely used in Turkey to transfer fiat funds to crypto exchanges and vice versa. Adverts on Turkey’s mainstream TV channels promoting crypto-assets have been a regular feature over the past 12-18 months. A weaker Turkish Lira and inflation pressures have also driven up demand for cryptocurrencies, with investors hoping to gain from Bitcoin’s rally and shelter against inflation. A growing boom was accelerated by last month’s sacking of TCMB Governor Naci Agbal by President Tayyip Erdogan. Trading volume surged while Turkish Google searches for cryptocurrency also hit a record high. The absence of regulation (and taxation) was also regarded as a key factor for the growth of Turkey’s crypto market, which appealed to the country’s youthful, tech-savvy population.
The regulation does not ban holding crypto-assets for investment purposes. However, there is not much clarity on when and under what circumstances transfer or purchase of crypto-assets could be classified as an investment and not payment. Another grey zone relates to whether fiat-to-crypto or crypto-to-crypto transactions made through crypto-exchanges would qualify as “payment” or not. Under Turkish law, a “payment obligation” is generally interpreted to indicate a monetary obligation in the sense of payment of money in exchange for a good or service.
Erdogan’s tight grip on Turkey’s payment ecosystem
In its statement explaining the reason behind the ban, the TCMB indicated that crypto-assets entail significant risks to the relevant parties due to the following reasons:
- They are neither subject to any regulation and supervision mechanisms nor a central regulatory authority,
- Their market values can be excessively volatile,
- They may be used in illegal actions due to their anonymous structures,
- Digital wallets can be stolen or used unlawfully without their holders’ authorization, and transactions are irrevocable.
However, it is worth noting that the Turkish authorities have been trying to keep a tight grip on the payment ecosystem for some time. In 2016, Ankara banned major global payment provider PayPal in the country. Last month, the Treasury and Finance Ministry announced that multiple institutions were monitoring Turkey’s crypto ecosystem. More significantly, Erdogan has recently made repeated calls on the Turks to cash in their gold and invest their savings (kept “under the mattress”) to shore up domestic financial markets.