Indonesian Religious Council Says Crypto Banned

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The National Council of Ulemas of Indonesia, the world’s largest Muslim-majority country, has said cryptocurrency is incompatible with Islamic finance. but that might deter some Muslims

The Indonesian National Religious Council has said cryptocurrency is haram or prohibited for Muslims because it is incompatible with Islamic finance, according to a statement released Thursday. First reported by Bloomberg, the National Council of Ulemas of Indonesia, or MUI, said the speculative nature of cryptocurrency was to blame.

Asrorun Ni’am Sholeh, head of religious decrees, said cryptocurrency has “elements of uncertainty, betting and prejudice” and is therefore prohibited for Muslims.

Islamic finance has strict prohibitions against certain types of financial instruments that are otherwise normal in other markets. The two pillars of the ban are based on the avoidance of riba (usury) and gharar (deception). For example, interest is heavily regulated; lending institutions must also be prepared to bear some of the borrower’s losses if their business collapses. Certain types of insurance are also prohibited, as are derivatives.

It should be noted that the decisions emanating from the MUI are not legally binding – officially Indonesia is a state where religious pluralism is enshrined in law – but they may deter Muslims in the country from investing in crypto. There is also considerable debate on the subject.

A full Islamic interpretation, which triggered a massive increase in Muslim investments in Bitcoin and Ethereum in 2018, was provided by Sharia Advisor Mufti Muhammad Abu-Bakar (former Blossom Finance advisor) who argued that Bitcoin is allowed under Sharia law, ”the UK-based Islamic crowdfunding platform Qardus wrote earlier this year. “He looked at the arguments that crypto itself was speculative, but his view was that all currencies have a speculative element and that doesn’t automatically consider crypto to be haram.”

Officially, the Indonesian government fully supports the development of digital assets and blockchain technology.

The Rupiah Token, a stable coin backed by the country’s local currency, the Indonesian Rupiah, has been given the regulatory green light. As Blockworks previously reported, Indonesia’s major banks are working to reduce the friction and costs of the billions of funds that the country’s migrant workers send back each month. BRI Ventures, a subsidiary of Bank Rakyat Indonesia, is an active investor in Ripple’s xCurrent and is working with Singapore-based FinTech Nium to develop an API that can be deployed in small regional banks across the country.

PT Bank Negara Indonesia, a state-backed bank, worked with JP Morgan on Confirm, a blockchain-based tool for speeding up wire transfers, and deployed it on a payment corridor between Taiwan – where 250,000 reside Indonesian migrant workers – and Indonesia.

MUI did not respond to questions from Blockworks press about the compatibility of Stablecoins and DeFi with Islamic finance at the time of publication.

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Sam reynolds

Blockworks

Journalist

Sam Reynolds is a Taipei-based journalist who covers digital assets and regulation across Asia. Prior to joining Blockworks, he was an editor at Forkast News and an analyst at IDC.

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