The top religious council in Indonesia has declared trading cryptocurrency haram or forbidden for Muslims under Shariah law, a religious law forming part of Islamic tradition that is derived from interpretations of the Quran.
The Southeast Asian country’s National Ulema Council — a semi-official body of Islamic scholars who issue religious edicts — has banned cryptocurrency because it has elements of uncertainty, wagering and harm, according to Asrorun Niam Sholeh, Indonesian head of religious decrees, Bloomberg reported.
If a given cryptocurrency can show a clear benefit as a commodity or digital asset, it will be deemed as abiding by the tenets of Shariah law, he added.
Indonesia’s central bank declared crypto an illegitimate instrument of payment in January 2018 but did not outright ban trading, allowing Indonesia’s crypto community to grow to around 4.5 million investors as of May.
Indonesia uses the rupiah as its sole currency and virtual money is not considered legal tender.
The council has a mandate to determine compliance with Shariah law in Indonesia, the world’s biggest Muslim-majority country. An estimated 231 million of the country’s total population of about 270 million are Muslim.
“Cryptocurrencies as commodities or digital assets are unlawful for trading because they have elements of uncertainty, wagering and harm,” Niam Sholeh said. “It’s like a gambling bet. Digital currencies are not tangible assets, and their value can fluctuate wildly so they violate Islamic law.”
The government has been supportive of crypto assets, allowing them to be traded alongside commodity futures as an investment option and pushing to set up a crypto-focused exchange by the end of 2021.
Indonesia’s crypto-based transactions amounted to $26 billion in the first five months of 2021 — almost six times more than the same period a year earlier, according to trade minister Muhammad Lutfi in June.
The number of traders has reached 6.5 million, up from 4 million.
It is not clear what kind of punishment, if any, would be given for trading cryptocurrencies, though the decree alone could discourage Muslims from participating in the flourishing crypto scene.
The decree could also stop Indonesia-based banks from offering crypto services. Bank Indonesia has been considering rolling out a central bank digital currency — a kind of crypto that would be tied to the country’s traditional rupiah currency.
The religious scholars of Indonesia’s National Ulema Council have grown increasingly influential over the past couple of decades. The country’s finance ministry and central bank consult the group when it comes to Islamic finance issues, according to Bloomberg.
Other Muslim-majority counties have allowed some form of cryptocurrency trading, including the United Arab Emirates, which allows trading in Dubai’s free zone, and Bahrain, which backs crypto assets.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?