National Bank of Cambodia to allow banks to process cryptocurrencies for the first time

The National Bank of Cambodia has given commercial banks and payment firms permission to provide crypto-related services, but not for Bitcoin and other unbacked tokens.

According to the Phnom Penh Post, the NBC formally declared the decision to allow banks to provide services involving Category 1 crypto assets on Dec. 27. Category 1 crypto asset are cryptocurrencies backed by fiat, including stablecoins such as USD Coin (USDC), USDT (USDT) as well as central bank digital currencies.

Though, this also means that Bitcoin (BTC), Ethereum (ETH) and other standalone cryptocurrencies are still prohibited in Cambodia.

Under this new law, all commercial banks and payment firms must first receive approval from the central bank if they want to provide crypto-related service. Once they are authorized, banks and payment institutions can convert crypto into fiat currencies and vice versa. They will also be allowed to facilitate cryptocurrency transfers between accounts and provide custody services.

However, financial institutions are strictly prohibited from using client’s crypto assets for their own benefit.

Before the NBC declaration, Cambodia had banned its citizens from making crypto transactions or trading cryptocurrencies due to the high volatility posed by virtual assets, as well as the widely held perception that crypto facilitates illicit activities such as money laundering and fraud.

This landmark move indicates Cambodia is slowly shifting towards the crypto industry, following a global trend seen in countries such as Hong Kong, the U.S. and UAE. Though compared to those countries, Cambodia is still in its very early stages.

Earlier this month, Cambodia blocked 16 major crypto exchanges including Binance, OKX, and Coinbase. The exchanges failed to secure licenses from Cambodia’s Securities and Exchange Regulator, which is necessary for operating in the country.

Cambodia remains cautious of cryptocurrencies as a whole, however the nation seems to be taking steps towards digital currencies that are pegged to fiat. In May, the National Bank of Cambodia governor Chea Serey expressed optimism that digital currency strengthen the Cambodian riel and decrease reliance on the U.S. dollar.