The Legislative Landscape of Cryptocurrencies in Bhutan Prior to 2024

As of 2023, Bhutan’s approach to cryptocurrencies remained cautious and largely unregulated. The country’s central bank, the Royal Monetary Authority (RMA), had been wary of cryptocurrencies since 2014. This caution was evident in the RMA’s warning that Bitcoin and other cryptocurrencies were not considered legal tender in Bhutan and were not backed by the central bank. Consequently, any transactions involving cryptocurrencies were carried out at the risk of the parties involved, with the government advising against their use due to potential risks​​.

Despite this cautious stance, Bhutan had not enacted any specific laws or penalties related to cryptocurrency. There was no regulatory framework governing the use, trading, or mining of cryptocurrencies. The legal status of cryptocurrency trading remained unclear, with the RMA’s warning against cryptocurrencies possibly being interpreted as a ban on trading. However, there were no explicit laws or regulations either prohibiting or regulating cryptocurrency trading. As a result, any trading activities were conducted at the individual’s own risk, without any legal protections​​​​.

Cryptocurrency gambling, following the general trend, was considered illegal, aligning with Bhutan’s strict laws against gambling. The absence of specific laws or regulations on cryptocurrencies left a significant gap in terms of resources and guidance for Bhutanese citizens interested in the field. While the Bhutanese government had not issued specific laws regarding cryptocurrency, the 2014 warning from the RMA was the only related resource available​​​​.

In a potentially transformative move, the central bank of Bhutan collaborated with Ripple to pilot a central bank digital currency (CBDC) using Ripple’s CBDC Private Ledger. This initiative, built atop Bhutan’s existing payments infrastructure, aimed to pilot retail, cross-border, and wholesale payment use cases for a digital Ngultrum. This collaboration was seen as a testament to the potential of CBDCs to offer an alternative and sustainable digital payment instrument in Bhutan. The initiative aimed to enable efficient and cost-effective cross-border transfers, building upon the Global Interchange for Financial Transactions (Gift) system launched in 2019, which enabled electronic transfer of large value and bulk payments​​​​​​.

Ripple’s technology was tested to handle tens of thousands of transactions per second (TPS), with the potential to scale up significantly over time. Ripple also promoted the use of its in-house cryptocurrency XRP as a neutral bridge asset for frictionless value movement between CBDCs and other currencies, indicating a progressive step towards integrating digital currency technology into Bhutan’s financial infrastructure​​.

In summary, prior to 2024, Bhutan’s approach to cryptocurrency regulation was characterized by caution and a lack of specific legal frameworks. The RMA’s warning against the use of cryptocurrencies and the absence of formal regulations created a landscape of uncertainty for cryptocurrency users and investors. However, the country’s collaboration with Ripple to pilot a CBDC represented a significant stride towards embracing digital currency technology, potentially paving the way for future developments in Bhutan’s digital currency landscape.