The central bank of Kyrgyzstan has permitted commercial banks to open escrow accounts specifically for operations with cryptocurrencies.
This type of bank accounts offer transacting clients the option to keep funds with a third party, thus reducing risks for themselves until the deal is done.
Kyrgyz banks to establish escrow accounts for crypto users
The National Bank of the Kyrgyz Republic (NBKR) has authorized banking institutions in the country to set up escrow accounts for transactions involving cryptocurrencies and digital tokens.
This is now possible thanks to recently introduced amendments to its Resolution “On Approval of the Instructions for Working with Bank Accounts and Bank Deposit Accounts,” which was originally adopted in 2012.
Under an escrow arrangement, a neutral third party holds funds or assets on behalf of two transacting customers until certain contractual conditions, agreed by the sides in advance, are fulfilled, Trend explained in a report on Friday.
The kind of bank accounts are primarily intended to serve as a mechanism to reduce various financial risks and limit opportunities for fraud, added the Azerbaijan-based news agency, which covers current events across the Caucasus and Central Asia.
In the crypto space, the same is usually achieved through the implementation of smart contracts and multi-signature wallets, which hold and automatically release digital assets when predefined conditions are met on the blockchain.
Kyrgyzstan continues on the path of crypto adoption
The escrow account permission by the NBKR comes on the heels of several other crypto-related developments in the former Soviet republic.
In September, Kyrgyzstan’s legislature passed a bill “On Virtual Assets”, which seeks to significantly enhance the regulation of cryptocurrencies and related activities.
The law imposes rules for crypto mining and lays the legal ground for the establishment of a national Bitcoin reserve.
It also introduces a licensing regime for platforms operating with digital assets and other service providers in the sector.
Furthermore, the legislation expands Kyrgyz President Sadyr Zhaparov’s regulatory powers in the field, Trend remarked.
His administration will have the authority to define rules governing the issuance, circulation, and oversight of digital currencies, the agency highlighted.
Within the new legal framework, Kyrgyzstan will be able to set up regulatory sandboxes, where participants will be free to try and test innovative crypto services and technologies.
Meanwhile, about a week ago, the country’s finance ministry announced the registration of a U.S. dollar-pegged stablecoin called USDKG, which is backed by gold reserves and will be listed soon.
Bishkek faces challenges on the road to crypto adoption
The crypto-friendly approach of the Central Asian nation has also created some headaches at home.
Another stablecoin issued by a Kyrgyz-registered entity, the Russian-ruble pegged A7A5, was targeted in international sanctions over its use by Russia to circumvent financial restrictions imposed in response to its invasion of Ukraine.
Along with crypto platforms, some of Kyrgyzstan’s banks were also affected by the punitive measures, prompting President Zhaparov to appeal to Western leaders to avoid “politicizing economy,” as he put it.
The growing Bitcoin mining sector also caused concerns in Bishkek, too. Citing electricity deficits, Kyrgyzstan’s government shut down all crypto farms this week, as reported by Cryptopolitan.
The restrictions on the energy-intensive minting of digital coins will remain in place at least until the end of March, next year, to conserve power during the cold winter months when consumption usually peaks.