Banking on blockchain: Can Bangladesh catch the bitcoin wave?

Dr. Nasim Ahmed :

The advent of Bitcoin, a decentralized digital currency, has revolutionized global financial systems. In Bangladesh, where digital transformation is accelerating across various sectors, Bitcoin offers opportunities to reshape trade, business, commerce, and industry. With a significant reliance on remittances and a growing tech-savvy youth population, Bitcoin provides unique possibilities. However, regulatory challenges, limited awareness, and infrastructure deficits hinder its adoption.
Bitcoin’s underlying technology, blockchain, ensures transparency and security, establishing it as a revolutionary financial instrument. Bitcoin can reduce transaction costs, enhance financial inclusion, and promote transparent economic activities. It also protects against inflation and currency volatility in unstable economies.
Bitcoin simplifies international trade by enabling direct, borderless transactions without intermediaries. This reduces transaction times and costs, especially for small and medium enterprises engaged in cross-border e-commerce.
Businesses can utilize Bitcoin for quicker B2B transactions, smart contracts, and transparent supply chains. Blockchain technology guarantees the integrity and traceability of goods, which is essential for the pharmaceutical, textile, and food processing industries.
Industries like remittances, manufacturing, and ICT can leverage Bitcoin’s efficiency and programmability. Smart contracts automate business processes and lessen reliance on intermediaries, enhancing cost-effectiveness.
In retail and e-commerce, Bitcoin enables consumers to make payments globally with lower fees and increased privacy. Merchants can attract international customers and operate in markets characterized by high credit card fraud rates or weak banking infrastructure.
Worldwide, Bitcoin has experienced differing adoption rates, with some countries accepting it as legal tender while others enforce strict regulations or outright bans. For instance, El Salvador has embraced Bitcoin as legal tender, whereas countries like the U.S., Canada, and Germany have incorporated it into their financial systems within regulated frameworks.
India initially imposed a banking ban on cryptocurrencies that was later lifted. India is now working towards a regulatory framework to govern digital currencies. Pakistan has shown interest in blockchain technology and is exploring regulatory measures for cryptocurrency usage. Japan, Switzerland, and Singapore have implemented balanced regulations that ensure innovation while preventing misuse. These examples highlight the potential for Bangladesh to rethink its stringent stance and consider regulated adoption.
In Bangladesh, Bitcoin’s emergence has been met with caution. The lack of formal recognition has not deterred its usage; instead, it has pushed activities into informal channels, raising concerns about security and legality. While Bangladesh has seen significant improvements in digital infrastructure, including mobile and internet penetration, the lack of crypto-related infrastructure, such as exchanges, wallets, and blockchain education, limits widespread adoption.
Bangladesh Bank has issued multiple warnings against the use of cryptocurrencies, citing concerns over money laundering and terrorism financing. While there is no specific law criminalizing Bitcoin ownership, existing regulations under the Foreign Exchange Regulation Act, 1947, and the Money Laundering Prevention Act, 2012, have been interpreted to prohibit cryptocurrency transactions.
Bangladesh faces infrastructure challenges in adopting Bitcoin. Limited and expensive internet access hinders widespread acceptance. There is a considerable knowledge gap concerning cryptocurrency operations and security measures. The lack of strong cybersecurity frameworks heightens vulnerability to fraud and hacking.
Nevertheless, Bangladesh may view Bitcoin as a potential tool for enabling faster and cheaper cross-border transactions. If integrated thoughtfully, Bitcoin could provide several benefits: (a) economic empowerment by offering financial services to unbanked and underbanked populations, (b) investment diversification by presenting new avenues for investment, particularly for the youth, and (c) technological advancement by promoting the development of blockchain technology and related sectors.
However, the risks associated with Bitcoin cannot be overlooked: (a) Volatility: Bitcoin’s price fluctuations may lead to significant financial losses. (b) Illicit activities: The anonymity of transactions could facilitate money laundering and illegal trade. (c) Regulatory vacuum: The lack of clear regulations creates uncertainty and potential legal repercussions for users. (d) Security and fraud: Insufficient user awareness and cybersecurity measures can result in scams, hacking, and fraud. Ensuring secure storage and transaction practices is essential.
To harness Bitcoin’s potential while mitigating risks, Bangladesh could consider the following: (a) Regulatory framework: Develop clear policies that define legal usage, taxation, and compliance requirements, (b) Public awareness campaigns: Educate citizens about the benefits and risks associated with cryptocurrencies, (c) Technological investment: Enhance digital infrastructure to support secure and efficient cryptocurrency transactions, and (d) Pilot programs: Implement controlled pilot projects to assess the feasibility of integrating Bitcoin into the financial system.
Bangladesh can consider adopting a sandbox approach to test Bitcoin applications under controlled conditions. Regulations should prioritize consumer protection, anti-money laundering (AML)/ know your customer (KYC) compliance, and fostering innovation. Policymakers, central banks, fintech companies, academia, and civil society can collaboratively shape a robust legal framework for cryptocurrency adoption. Clear and enabling regulations can be established to create a safe and legal environment for Bitcoin-related activities in Bangladesh.
Although challenges remain, the potential benefits for financial inclusion, technological advancement, and economic diversification are substantial. A balanced approach that combines regulation, education, and infrastructure development could pave the way for Bitcoin to become a valuable element of Bangladesh’s financial landscape. Bangladesh can partner with international organizations and governments to learn from global experiences and develop best practices. With a growing digital economy and an entrepreneurial youth population, Bangladesh stands to gain significantly from the careful integration of Bitcoin into its financial ecosystem.

(Dr. Nasim Ahmed holds a PhD in Public Policy from Ulster University in the UK and is currently working as an Additional Secretary at the Ministry of Home Affairs, Bangladesh).