Nepal's Crypto Ban Under Foreign Exchange Act 1962: What It Means Today

Posted by Victoria McGovern

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17
Dec

Nepal's Crypto Ban Under Foreign Exchange Act 1962: What It Means Today

Since 2017, Nepal has made it illegal to buy, sell, trade, or mine any cryptocurrency - not just Bitcoin, but Ethereum, Solana, Dogecoin, or anything else digital. This isn’t a warning. It’s a criminal offense. And despite global shifts toward regulation, Nepal still holds one of the strictest crypto bans in the world - all under a law written in 1962, long before anyone had heard of blockchain.

How a 60-Year-Old Law Banned Bitcoin

The ban didn’t start with a modern policy. It started with a notice. On August 13, 2017, Nepal Rastra Bank (NRB), the country’s central bank, issued a simple statement: Bitcoin transactions are prohibited under Section 12 of the Foreign Exchange (Regulation) Act, 1962. No debate. No public consultation. Just a legal hammer dropped on a technology that didn’t even exist when the law was written.

That law was meant to stop people from smuggling money out of the country through fake imports or hidden bank transfers. It gave NRB power to control foreign currency flows. Cryptocurrency, being decentralized and borderless, fit perfectly into that old definition of an illegal foreign exchange violation. You can’t regulate it. You can’t tax it. You can’t track it easily. So NRB banned it.

By 2021, the ban got even tighter. The government expanded the prohibition to cover all cryptocurrency activities - trading, mining, promoting, even advertising. Then in January 2022, they added a specific rule: no business can facilitate crypto transactions, even if done through a VPN or overseas exchange. The message was clear: if you’re involved, you’re breaking the law.

What Exactly Is Illegal?

It’s not just buying Bitcoin on Binance. It’s everything:

Buying crypto using Nepali rupees through any platform
Selling crypto you own, even if you bought it abroad
Mining crypto using Nepal’s cheap hydropower
Running a P2P trading group on WhatsApp or Telegram
Accepting crypto as payment for goods or services
Using crypto to send money to family overseas

Even using a foreign exchange to buy crypto and then transferring it to a wallet you control is considered illegal. NRB says it doesn’t matter if the transaction happens outside Nepal. If you’re a Nepali citizen, you’re still bound by the law.

The Penalties Are Real

This isn’t a fine you can ignore. The Foreign Exchange (Regulation) Act, 1962, carries serious consequences:

Up to three years in prison
Fines up to three times the value of the transaction
Seizure of assets used in the violation

In January 2022, the Department of Revenue Investigation filed a case against four people for moving Rs376 million ($2.8 million) into crypto. They were charged with foreign exchange misappropriation. That case is still ongoing. It’s not a rumor - it’s court record.

Banks are required to report any suspicious activity under Section 52(1) of the Nepal Rastra Bank Act, 2002. If you send Rs500,000 or more to a foreign wallet, your bank has to flag it. That’s not theoretical. In 2021-22, NRB identified 237 cases of crypto-linked remittances totaling Rs1.82 billion.

Youths mine Bitcoin in a basement using hydropower, while a bank official watches outside.

But People Are Still Doing It

The ban works on paper. In practice? Not so much.

Nepal has over 67% internet penetration. Young people, especially in cities like Kathmandu and Pokhara, are tech-savvy. Many use VPNs to access international exchanges like Binance, Bybit, or Kraken. Others trade directly through peer-to-peer apps like LocalBitcoins or Paxful.

A 2023 survey by Young Innovations Nepal found that 18.7% of Nepalis aged 18-35 have traded crypto. Of those, 63% used foreign exchanges via VPN. Nearly 28% did P2P trades. Some even mine Bitcoin using cheap hydropower in districts like Kavrepalanchok and Nuwakot, where electricity costs just Rs5.50 per unit.

But it’s risky. There are no protections. No recourse. One Reddit user reported losing $1,200 in a P2P deal where the other person disappeared. Another said their wallet was hacked after sharing private keys on a Telegram group. No police will help. No court will enforce a crypto contract. You’re on your own.

Why Is Nepal Holding On?

NRB’s official reason? Protecting foreign exchange reserves.

Between July and December 2021, Nepal’s forex reserves dropped 14.7% - from $11.75 billion to $10.03 billion. NRB blames crypto for capital flight. They argue that people are sending money abroad to buy crypto instead of investing locally or bringing in remittances.

There’s also the remittance angle. Nepal gets over $8 billion a year from workers overseas. In 2021-22, remittances dropped 7.3% year-on-year. NRB’s chief economist claimed crypto was partly to blame - that people were using crypto to bypass traditional channels like Western Union or MoneyGram.

But critics say that’s backwards. The World Bank says the average cost to send $200 to Nepal is 6.5%. Crypto could slash that to under 1%. If Nepal allowed regulated crypto remittances, families could save hundreds of millions annually.

Dr. Bhola Nath Ghimire, a former NRB deputy governor, said in 2023: “The ban protects nothing. It only punishes the honest.”

A defendant in court is surrounded by digital coins and the ancient 1962 law turning to smoke.

How Does Nepal Compare?

Nepal is one of only 11 countries with a total crypto ban. China banned trading in 2017 - but now runs its own digital yuan with over 260 million users. India taxes crypto at 30% but lets people trade legally. Bangladesh bans crypto too, but is testing a central bank digital currency (CBDC). Pakistan requires exchanges to register under anti-money laundering rules.

Nepal is alone in refusing to adapt. Even countries with strict controls are moving toward regulation. Nepal is stuck in 1962.

What’s Next?

There are signs of change - slow, cautious, but real.

In July 2023, NRB Governor Maha Prasad Adhikari said the bank is developing a CBDC. Not crypto. Not Bitcoin. A government-controlled digital rupee. That’s the direction they’re leaning: digital money, but only if the state controls it.

The Ministry of Finance set up a 12-member committee in 2022 to study global crypto laws. No report has been released yet. But the International Monetary Fund warned in 2023: “The current ban may be counterproductive as it drives activity underground.”

The World Bank thinks Nepal will have to change within two to three years. The IMF says the ban isn’t working. NRB says it will last five more years.

The truth? The ban is unsustainable. People are already using crypto. The government can’t stop technology. It can only delay it - and make the risks worse.

What Should You Do?

If you’re in Nepal and thinking about crypto:

Don’t risk prison or fines. The law is clear.
Don’t trust P2P traders. No legal protection exists.
Don’t assume anonymity. Banks report large transfers.
Don’t mine without understanding the risks. Electricity is cheap, but detection is real.

If you already own crypto bought abroad - you’re in a gray zone. NRB says it’s illegal. But unless you’re trading or cashing out, enforcement is rare. Still, don’t assume you’re safe.

The best move? Stay informed. Watch for official updates. The next policy shift could come fast - and it might not be a ban anymore.

Is it illegal to own cryptocurrency in Nepal?

Owning crypto bought abroad isn’t explicitly criminalized, but Nepal Rastra Bank considers it illegal under the Foreign Exchange Act. If you hold it without trading or cashing out, enforcement is rare - but you have no legal protection. Any transaction involving it - selling, sending, mining - is a punishable offense.

Can I use a VPN to trade crypto in Nepal?

Using a VPN to access foreign exchanges is still illegal. NRB has stated that the method doesn’t matter - if you’re a Nepali citizen, you’re bound by the law. While many people do it, it’s not safe. Banks monitor large transfers, and if you’re flagged, you could face investigation or prosecution.

What happens if I get caught trading crypto?

You could face up to three years in prison and a fine up to three times the value of your crypto transactions. The Department of Revenue Investigation has already filed criminal cases against individuals for crypto-related foreign exchange violations. There’s no warning system - enforcement is direct and punitive.

Can I mine Bitcoin in Nepal legally?

No. Mining Bitcoin or any cryptocurrency is banned under Nepal’s 2021 expansion of the crypto prohibition. Even though electricity is cheap and abundant, mining is considered a violation of foreign exchange and investment laws. There have been reports of underground mining, but it’s illegal and carries the same penalties as trading.

Is Nepal planning to legalize cryptocurrency?

Not yet. Nepal Rastra Bank is developing a central bank digital currency (CBDC), which is a government-controlled digital rupee - not crypto. There’s no official plan to legalize Bitcoin or Ethereum. However, international pressure and the reality of underground usage suggest regulation may come within the next few years - but legalization is still uncertain.

Why doesn’t Nepal just tax crypto like India?

Nepal’s central bank believes taxation would legitimize something it sees as inherently dangerous - unregulated, decentralized money. They fear it could accelerate capital flight and weaken control over foreign exchange. Unlike India, which has a large domestic crypto market and tax infrastructure, Nepal’s financial system is smaller and less equipped to handle digital asset oversight. The ban is seen as a simpler, if outdated, way to control risk.

Dec 17, 2025
Victoria McGovern
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