Bangladesh Crypto Ban: Foreign Exchange Act, Legal Gaps, and Underground Trading Reality

Buying Bitcoin in Bangladesh feels like walking a tightrope. On one side, you have the official stance from Bangladesh Bank, which is the central banking authority of Bangladesh that has maintained a strict prohibition on cryptocurrency usage, trading, and possession since 2017: it’s illegal. On the other side, you have millions of people quietly trading crypto using apps available on their phones. This contradiction creates a confusing landscape where the law says one thing, but daily reality looks very different.

The core of this confusion lies in how old laws are being applied to new technology. The government relies heavily on the Foreign Exchange Regulations Act of 1947 (FERA), which is a colonial-era legislation designed to control foreign exchange transactions and stabilize the national economy. But does this 80-year-old law actually cover digital assets? That is the question keeping lawyers, traders, and regulators up at night.

The Legal Loophole in the Foreign Exchange Act

To understand why the crypto ban is shaky, we need to look closely at Section 2(b) of the Foreign Exchange Regulations Act. This section defines what counts as "currency." It lists specific items: currency notes, postal orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange, and promissory notes.

Here is the problem: Bitcoin, Ethereum, or any other cryptocurrency does not fit into any of those categories. They are not paper money, they are not checks, and they are not drafts. There is a second part to the definition, though. Section 2(b)(ii) allows Bangladesh Bank to declare any other instrument as "currency" through an official notification in the Gazette.

Legal experts point out that this notification has never happened. The central bank has issued warnings and circulars, but it has never formally declared cryptocurrency as "currency" under the strict requirements of FERA. Without that formal declaration, criminal prosecution for simply holding crypto under this specific act becomes legally questionable. This gap means that while the spirit of the law seems to prohibit crypto, the letter of the law might not support it.

Bangladesh Bank’s Strict Prohibition

Despite the legal ambiguities, the practical ban is real and enforced through banking channels. In 2017, Bangladesh Bank clarified its position, banning all usage, trade, and possession of cryptocurrencies. The reasons cited were serious: money laundering, terrorism financing, and financial instability.

This prohibition goes beyond just stopping people from buying coins. It aims to cut off the flow of funds. Banks are instructed to monitor transactions closely. If they see activity linked to known crypto exchanges or suspicious patterns, they can freeze accounts or block transfers. For anyone trying to move money out of the country to buy crypto, this creates a significant barrier. You cannot easily use your debit card to pay for Bitcoin on a global platform because the transaction will likely be flagged and blocked by your local bank.

The Underground Market and Local Agents

If banks are blocking direct purchases, how do people still trade? The answer is the underground market. A thriving network of local agents facilitates these trades. These individuals act as middlemen. You send them Bangladeshi Taka via bKash, Nagad, or bank transfer, and they send you cryptocurrency to your wallet.

This system works because it bypasses the formal banking scrutiny associated with international transfers. The agent receives local currency and sends digital assets, often charging a small commission. Apps like Binance and KuCoin remain accessible on the Google Play Store, meaning users can download the software easily. The restriction isn't technical; it's financial. By using local agents, traders avoid triggering the cross-border transaction alerts that banks monitor.

This informal market is huge. While exact numbers for Bangladesh are hard to pin down due to its covert nature, neighboring Pakistan has an estimated $25 billion informal crypto market. Bangladesh likely has a similar scale of activity relative to its population. The demand for crypto remains high regardless of the official ban.

Taxation Paradox: Illegal Yet Taxable?

One of the most confusing aspects of the current regime is taxation. The National Board of Revenue (NBR), which is the primary tax enforcement authority in Bangladesh responsible for collecting federal taxes manages tax obligations. As of 2025, there is no specific cryptocurrency tax law.

However, the NBR treats cryptocurrencies as property under the general Income Tax Ordinance of 1984. This means if you sell crypto for a profit, that gain could be subject to capital gains tax. This creates a paradoxical situation. The government prohibits the activity, yet expects you to report and pay taxes on the profits derived from that prohibited activity. Most traders operate in the shadows and do not report these gains, leading to significant regulatory gaps and lost revenue for the state.

Comparison with Neighboring Countries

Bangladesh’s approach stands out as uniquely restrictive when compared to its South Asian neighbors. While Dhaka maintains a hard ban, other countries are moving toward regulation.

In Pakistan, the establishment of the Pakistan Digital Assets Authority (PDAA) in May 2025 marked a shift toward formal oversight. They even allocated electricity for Bitcoin mining. India implemented a structured tax regime, collecting $1.8 billion in FY 2024-2025 from crypto transactions. Bangladesh, by contrast, remains isolated. This isolation may limit its participation in the growing digital asset economy and push more activity further underground.

Expert Opinion and Future Outlook

The academic community is increasingly critical of the ban. Dr. B M Mainul Hossain, a professor at Dhaka University, has publicly stated that banning cryptocurrency is not an effective solution. His view represents a growing sentiment among experts who believe regulation would serve public interests better than prohibition.

The persistence of the underground market suggests that bans are ineffective at stopping adoption. People find ways around restrictions, especially when the technology is accessible via smartphones. The challenge for policymakers is clear: the Foreign Exchange Regulations Act of 1947 was designed for a post-independence economic context with traditional currencies. It lacks the sophistication to address decentralized digital assets.

Future developments may involve legislative amendments. To make the ban enforceable, the government would need to explicitly include cryptocurrencies in the definition of currency under FERA or create a new digital asset law. Alternatively, they could follow the path of India and Pakistan, creating a regulatory framework that brings transparency and tax compliance. Until then, the legal ambiguity remains, leaving traders in a gray area where they risk legal trouble despite the lack of clear statutory grounds for prosecution.