IMF Presses Nepal to Regulate Crypto as Flows Surge Despite 2021 Ban

Nepal tried to outlaw crypto. The data says users found a way anyway. In its 2026 Article IV Consultation, the IMF reports that crypto flows into Nepal expanded sharply from 2019 to 2024 despite a formal prohibition, with activity cresting above 13% of GDP in 2021 and totaling more than $2.6 billion at that peak. Volumes cooled to about 4% of GDP by 2023, then rebounded toward 8% in 2024 as stablecoins took an ever-larger share. Early 2025 cross-border flows sat near 5% of GDP—higher than Bangladesh and Myanmar, but far below Vietnam’s roughly 26%.

The Fund’s message is straightforward: adopt a regulatory framework aligned with international standards to safeguard financial stability, market integrity, and consumers—while narrowing avenues to evade capital controls or trigger large deposit outflows. It also urged Kathmandu to complete its FATF action plan and exit the grey list. The recommendations arrived as the IMF’s Executive Board finished the seventh and final review of Nepal’s Extended Credit Facility on June 5, with ongoing engagement planned via post-financing assessment and annual Article IV reviews that now explicitly include crypto oversight.

The 2021 blanket ban remains on paper—Nepal’s central bank outlawed trading, mining, and related activities—but user behavior has shifted rather than disappeared. The clearest throughline is remittances and stablecoin rails. When domestic FX channels are slow, costly, or constrained, people often move to internet-native dollars that settle in minutes. This is why bans tend to harden the use cases that are hardest to police and most essential to households. You don’t erase demand; you re-route it offshore and into opaque venues.

The smarter path is to regulate the on- and off-ramps that shape real risk. As Musheer Ahmed of Finstep Asia notes, technology itself isn’t what regulators govern; it’s the use cases. Trading and remittances persist even in restrictive markets, which makes them the right targets for guardrails. In practice, that means licensing VASPs, enforcing FATF Travel Rule compliance, tightening stablecoin fiat redemption and disclosure standards, and supervising cross-border payment paths without defaulting to blunt capital controls. Done well, this pulls activity into surveillable channels, reduces consumer harm, and contains systemic spillovers—especially deposit flight during stress.

The IMF’s posture in Nepal is consistent with its wider playbook. Consider El Salvador: after scaling back its Bitcoin initiative in December 2024 to secure a $1.4 billion facility, the government insisted Bitcoin purchases had effectively stopped. President Nayib Bukele has claimed the opposite, saying the country continues buying roughly one BTC per day. On-chain data shows government-linked wallets growing by about a coin daily, though analysts caution this could reflect internal wallet movements or exchange routing rather than fresh buys. As Ahmed frames it, the “experiment” mattered more for branding than for monetary function; Bitcoin is still treated largely as an asset, while real user traction has gathered around payment rails—particularly the so-called stablecoin sandwich.

Nepal’s political backdrop amplifies the risk of prohibition-first strategies. After authorities blocked 26 social platforms on September 4, youth-led protests toppled the Oli government and brought in an interim administration under former chief justice Sushila Karki. The clampdown triggered one of the deadliest crackdowns in years—and catalyzed adoption of Jack Dorsey’s decentralized messaging app Bitchat. Tens of thousands downloaded it because it can communicate over Bluetooth and mesh networks without internet or accounts. China later ordered it pulled from its App Store due to rules on services enabling “social mobilization.” The pattern is familiar: bans can accelerate migration to tools that are harder to monitor.

My read: Nepal’s core challenge isn’t whether crypto exists—it’s where the risk sits. Keep it banned, and risk migrates to offshore apps, P2P groups, and unlicensed brokers. License it under global norms, and you localize transparency, taxation, and consumer redress while reinforcing capital-account defenses with data. Pair targeted oversight of stablecoin remittances with reporting thresholds, FX buffers at banks, and circuit breakers for on-ramp flows. Leave room for tokenization pilots tied to real-world assets under strict custody and disclosure rules. That is how you reconcile macro stability with the inevitability of digital money pipes.

The IMF will stay at the table. Whether Nepal chooses visibility over shadow markets will determine if crypto remains a pressure valve outside the system—or becomes an auditable rail that the system can actually manage.