Turkish central bank to ban crypto payments by end of April

• The Turkish central bank has decided to ban crypto-related payments for goods and services by April 30.
• The new regulation does not cover crypto transactions on exchanges or for investing in the new asset class.
• Crypto trading continues to rise in the country as economic turmoil washes over Turkey. 

Following the quick rise of inflation in Turkey, its central bank is banning the use of cryptocurrency payments.

Crypto-related payments to be banned

According to the central bank, the regulation will come into effect on April 30, and cryptocurrencies cannot be used directly or indirectly for payments. 

The central bank has banned any services provided for the use of digital assets in payments. On top of that, payment service providers will not be able to develop business models where the new asset class would be directly or indirectly linked to the provision of payment services or electronic money issuance. According to the official gazette:

Payment and electronic money institutions will not be able to intermediate the platforms that offer trading, custody, transfer or issuance services for crypto assets or fund transfers from these platforms.

Although the Turkish central bank will regulate services in payments related to cryptocurrencies, deposits of Bitcoin and other digital assets were not included in the new regulation. Although further explanation of key gray areas is required, transactions made through crypto exchanges would not be qualified as “payment,” indicating that it is still legal. 

Central bank instability led to crypto trading frenzy

It all started when Turkey’s President Recep Erdoğan fired the head of the country’s central bank, Naci Ağbal. The lira plunged 15% against the US dollar when news broke of the affair in mid-March. Sahap Kavcioglu was appointed as the fourth governor of Turkey’s central bank, expected to fulfill the president’s wishes for lower interest rates.

In March, inflation reached a six-month high of 16.2%, surpassing the 5% target. Unemployment remains high, at a rate of 13.4%, leading to the extension of the economic turmoil. During this time, cryptocurrency trading has skyrocketed, as investors hope to hedge against inflation.

According to blockchain analysis company Chainalysis, trading volumes soared right after the former central bank head was fired. Between the start of February and late March, trading volumes amounted to 218 billion lira, up from over 7 billion lira in the same period in 2020.

While Bitcoin price has been climbing to all-time highs, Turkish interest has been steadily growing in tandem, as the leading cryptocurrency has a finite supply and a reputation for curbing inflation. Özgür Güneri, CEO of cryptocurrency exchange BtcTurk, said:

Turkish people like stable assets due to our history of high inflation. That is why generation after generation of Turks invested in gold, real estate and dollars.

Despite an uptick in searching for a safe-haven asset in uncertain times, internet searches for cryptocurrency rose, while searches for gold remained flat. 

Analysts predict that the lira’s inflation will rise through April, while Goldman Sachs expects it to peak at 18%