Will the Central Bank of Jordan ever embrace cryptocurrency?

Despite rising popularity, Jordan’s Central Bank doesn’t seem likely to budge on its crypto ban. (Photo: Jordan News)
Despite rising popularity, Jordan’s Central Bank doesn’t seem likely to budge on its crypto ban. (Photo: Jordan News)
AMMAN — Since its initial release in 2009, bitcoin and other forms of cryptocurrency have promised to revolutionize transactions and have even been adopted by national central banks. But in Jordan, despite interest from some youth and businesspeople, the changes this new technology promises to bring have been obstructed by outright bans and resistance from the Central Bank of Jordan (CBJ). اضافة اعلان

Cryptocurrencies, which are digital assets designed to operate as a medium of exchange, could help revitalize Jordan’s semi-rentier economy, which heavily relies on migrant remittances. Such digital assets pave the way for efficient, low-cost cross-border money transfers, which would allow Jordanians abroad to easily transfer money into the Kingdom.

But the Central Bank prohibited cryptocurrency even before engaging in research on the topic. According to documents made available to Jordan News by Maher Mahrooq, director of the Association of Banks in Jordan, the CBJ first sent out a circular prohibiting “all banks, financial institutions, exchange companies, and payment card companies” from dealing with cryptocurrencies under any possible circumstance in February of 2014.

It wasn’t until over six years later that the bank published its first cryptocurrency research report, which came to light in March of 2020. In 2018, Ziad Freiz, the crypto-cautious governor of the CBJ, sent out another circular prolonging the ban, citing Ethereum and Ripple as two notable examples.

The Central Bank of Jordan has issued contradictory statements claiming support for “solutions that leverage on new innovations like blockchain”, and then stressing its policy of “banning cryptocurrencies in the Jordanian financial system.” But these policies can’t be reconciled: To leverage blockchain, cryptocurrencies must be exchanged freely.

The CBJ’s authority does not actually allow it to ban cryptocurrency trading at a retail level, i.e. at the level of the individual consumer. But its restrictions on commercial banks have the same effect of making it next to impossible to trade cryptocurrency in the Kingdom.

As a result of this ban on commercial banks, individuals in Jordan attempting to purchase cryptocurrency online through platforms like EToro are faced with extensive restrictions. Users of popular social media platform Reddit’s Jordan forum cited days-long holds on their bank accounts, which could only be lifted by submitting trading app transaction history to prove that no cryptocurrency was bought. Many are therefore discouraged or barred from participating in the market.

Simply put, rather than squaring up to its intended goal of protecting investors, this ban is “limiting Jordanian citizens’ ability to take part in the future of finance,” said Talal Tabbaa, cofounder of Jibrel Network, an open-source web development company that aims to “bridge the gap between governments, central banks, regulators, and blockchain technology,” in an interview with Jordan News.

“It’s illogical that Jordan’s lottery system (gambling) is regulated and accepted, whereas cryptocurrency investment isn’t,” argued Tabbaa.

Jibrel was one of the first cryptocurrency-related companies to collaborate with the Kingdom’s Central Bank in 2018 via a regulatory Fintech (financial technology) Sandbox established to incentivize businesses and entrepreneurs “to test newly-developed FinTechs”. Tabbaa accredited the bank’s crypto-based timidity to a lack of fundamental awareness on cryptocurrency, which has bred “a fear of the unknown” among the entity's workforce.

He referred to the CBJ’s ban on cryptocurrency as an ostrich policy -— a metaphoric expression used to describe the tendency to ignore obvious matters and pretend they don’t exist. “It is the absolute worst thing you can do as a regulator,” he asserted.

The Central Bank described the Fintech Sandbox program as an incubator where businesses can test ideas “without directly being subject to regulatory and supervisory requirements” in order to “support them in entering the market faster”. Tabbaa’s Jibrel Network, however, faced supervisory restrictions in the form of a 10-person limit when it came to demonstrating proof of concept. 

As a startup founder, Tabbaa understands “it’s impossible to make commercial sense out of working with 10 people,” he admitted. “We were a bit tied down.” He cited the Central Bank’s “low appetite for risk” as a factor at play. Nevertheless, Tabbaa is optimistic about working with the CBJ in the future, and that’s due to the presence of “many bright-minded people” that are not necessarily anti-cryptocurrency.

Tabbaa has experience dealing with regulators in the UAE, Saudi Arabia, and Switzerland. To him, CBJ regulators stand out. “I can comfortably say that there are individuals at the Central Bank of Jordan that have a better vision than anyone else, with the exception of those in Bahrain.”

Since many at the CBJ aren’t against the cryptocurrency, it becomes clear that the bank’s centralized group of decision makers is responsible for the hindrance of cryptocurrency expansion in Jordan. Tabaa agreed.

In addition to the CBJ’s opposition to cryptocurrency, the Telecommunications Regulatory Commission bans importing the cryptocurrency mining equipment used to mint and verify coins such as Bitcoin.

According to Jordan Open-Source Association Executive Director Issa Mahasneh, this ban on mining equipment is largely redundant. This is because while the TRC is responsible for regulating the entry of technology into the country, it cannot practically control simpler mining operations, including mining via cell phones. Such under-the-radar mining methods are inevitable and, according to Mahasneh, “impossible to control.”

This attempt at suppressing the expansion of blockchain technology through over-regulation is what Mahasneh refers to as a “lost opportunity” for Jordanians. There is rising privacy concern about credit card payments; by contrast, the blockchain’s decentralized, encrypted nature, enables trust among users and ultimately ensures privacy, according to Mahasneh.

Mahasneh referred to this extended level of privacy as an “added value” that should be appreciated and not downplayed. In a world of over-centralization, decentralization is imperative. “There is a stronger need for privacy globally,” he said.

The CBJ’s main defense of its reluctance to use cryptocurrency is that the technology can be easily misused, whether through hacking, money laundering, or other illegal activities facilitated by the technology’s anonymous capabilities. But the data shows that this fear is largely unfounded.

Mahasneh noted that the bank’s fear of cryptocurrency misuse is “largely exaggerated”. At the end of the day, traditional banks are statistically and historically more prone to hacks.

In fact, most illegal activity, whether hacking or money laundering, occurs using fiat currency, not crypto. “We don’t ban fiat currencies for their inevitable use in illegal activity, do we?” asked Mahasneh rhetorically.

Here, a question arises: Why is cybersecurity a much bigger concern to the Central Bank when it comes to cryptocurrency, when most cybersecurity breaches occur within fiat-dealing commercial banks?

Regardless of the rate at which the Jordanian financial ecosystem really accepts blockchain technology and cryptocurrencies, both will continue to grow over time, and retail interest in the technology has only proven solid. Historically, attempts at suppressing a growing technology almost always backfire. At some point, the Central Bank of Jordan will have to engage with digital currencies, one way or another, but so far, its public stance remains unchanged.

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