Saudi Arabia and Qatar share common concerns regarding cryptocurrencies, including their inherent volatility, potential for misuse in illicit activities, and the lack of established consumer protections. However, their approaches to addressing these concerns are different.
Saudi Arabia continues to adopt a cautious stance, warning about the potential risks but holding off on enacting a complete prohibition. In contrast, Qatar has taken a more stringent approach, banning all cryptocurrency-related activities in the Qatar Financial Centre (QFC) sector.
This article dives into the complex legal landscape for cryptocurrencies in Saudi Arabia and Qatar, focusing on the official regulations in place and asking a crucial question: How does Shariah law influence the permissibility of these digital assets?
The legality of Bitcoin and other cryptocurrencies in Saudi Arabia
In Saudi Arabia, the regulatory framework surrounding cryptocurrencies is marked by a blend of caution and forward thinking. The Saudi Arabian Monetary Authority (SAMA) is at the forefront of monitoring cryptocurrency transactions, focusing on a regulatory environment that aims to protect investors while fostering financial stability. SAMA works to achieve a balance between caution and innovation.
Crypto has quasi-legal status in Saudi Arabia. In 2018, the government restricted banks from assisting with any cryptocurrency-related transactions. Authorities have repeatedly stated that people who trade cryptocurrencies have no financial protections and could be risking their investments. At present, there are no recognized legal consequences for anyone who chooses to interact with digital assets of any kind.
However, Saudi Arabia’s unclear legal position presents a challenge for potential cryptocurrency investors, discouraging them from engaging in crypto trading because they fear possible legal repercussions.
Is crypto Sharia compliant?
Shariah law is a body of Islamic principles guiding Muslims in moral, ethical and legal matters, covering aspects of daily life, including finance. Shariah emphasizes fairness, avoiding excessive risk (gharar) and having real-world assets to back transactions. It plays a significant role in shaping Islamic finance and can influence views on new financial concepts like cryptocurrency.
Whether cryptocurrencies like Bitcoin (BTC) align with Shariah principles is a complex matter for Islamic scholars. Some view the excessive price fluctuation of cryptocurrencies as problematic because it encourages speculation similar to gambling, which is illegal under Shariah law.
Moreover, cryptocurrencies’ lack of intrinsic value and reliance on market demand creates uncertainty (gharar), which is also discouraged in Islamic finance. Due to its lax regulation, there are worries about cryptocurrencies’ potential for illegal activity. However, its decentralized structure fits perfectly with the fundamental tenet of Islamic finance: eliminating centralized authority.
Additionally, the transparent nature of blockchain technology could promote the values of fairness and accountability central to Shariah. Nonetheless, for now, the status of cryptocurrencies as Shariah-compliant investments in Saudi Arabia is uncertain. Ultimately, whether a cryptocurrency is considered halal or haram (permitted or forbidden) may depend on individual interpretations of Shariah law, its future evolution, and the potential for it to be backed by Shariah-compliant assets.
Qatar’s restrictive measures against cryptocurrency activities
Qatar stands out with its decidedly restrictive approach toward crypto. The country’s stance stems from concerns about investor protection, potential financial instability, and the risks of using cryptocurrencies for illicit activities.
The QFCRA’s stance on cryptocurrencies vs. security tokens
A report issued by the Qatar Financial Centre Regulatory Authority (QFCRA) in 2020 marked a significant shift in the country’s approach to cryptocurrency, as it declared a ban on all cryptocurrency-related activities within the Qatar Financial Centre, a key economic zone.
This sweeping ban encompassed core aspects of the cryptocurrency market, explicitly prohibiting crypto-to-crypto trading, crypto-to-fiat exchanges and any services facilitating the trading, custody or issuance of digital assets. This ban severely restricts the possibility of widespread crypto acceptance and investment within Qatar’s borders.
The main justifications given by the QFC for its restrictive measures are concerns about the inherent risks associated with cryptocurrencies and the need to safeguard investors and the financial system.
One interesting point in the QFCRA’s report is the exclusion of security tokens from the cryptocurrency ban. Unlike traditional cryptocurrencies like Bitcoin, these digital assets represent ownership of a real-world asset or investment project.
The report clarifies that any financial instrument regulated by the QFCRA, the Qatar Central Bank, or the Qatar Financial Markets Authority remains permissible. This exemption likely reflects Qatar’s desire to balance embracing innovation in financial technology while mitigating the risks associated with unregulated cryptocurrencies.
With their existing regulatory framework and focus on underlying assets, security tokens might be seen as a more controlled and transparent option within Qatar’s financial system.
Qatar’s religious context and Shariah perspectives on cryptocurrencies
When evaluating whether cryptocurrencies are permissible, the religious setting of Qatar (similar to Saudi Arabia) adds another level of difficulty to the government’s ban. Several fundamental tenets of Shariah law cast doubt on the compatibility of cryptocurrencies.
Many Shariah scholars contend that for a currency or asset to be deemed halal, it should be backed by a tangible asset or real economic activity. The lack of a clear underlying asset for most cryptocurrencies raises concerns from this perspective. Others express that cryptocurrencies can introduce significant gharar into transactions because of their extreme volatility, which could render them inconsistent with Shariah law.
Additionally, cryptocurrency’s relative anonymity and potential use in money laundering and other illegal activities conflict with Shariah ethics, prohibiting activities that facilitate harm or injustice.
Young Saudis eye crypto future, awaiting regulatory clarity
Crypto is the advent of a new and equitable monetary system. Governments across the world view it differently and take action accordingly. El Salvador, for instance, has recognized Bitcoin as a legal tender. Some governments treat crypto as a commodity or property but don’t recognize it as legal tender, while others have banned cryptocurrencies completely.
With cryptocurrencies, regulators identify risks like financial and macro instability, fraudulent behavior and criminal funding. The objective of the cautious and restrictive approach of the Saudi Arabia and Qatar regulators is to ensure that risks are covered and prevent any negative implications for the economy. They want to understand the consequences of a decentralized currency ecosystem on the domestic economy and order before allowing it.
In line with global trends, younger Saudis earning at least 30,000 riyals per month demonstrate more interest in pursuing crypto investment compared to citizens over 45 years of age. This scenario won’t shift until crypto operates within a legal framework.
With countries like Dubai taking the lead in setting up a regulatory framework for crypto, other regulatory bodies in the region, such as the SAMA and the QFCRA, may take positive cues and follow suit.
The future of cryptocurrency regulations in Saudi Arabia and Qatar
Although Saudi Arabia and Qatar impose strict regulations prohibiting cryptocurrencies, this may evolve as the cryptocurrency industry matures. The SAMA and QFC’s stance on Bitcoin and other cryptocurrencies may be influenced by factors like the worldwide evolution of cryptocurrency legislation, technological advancements to mitigate risks, and creating cryptocurrency models that comply with Shariah.
Additionally, competitive pressures from neighboring nations in the Gulf region that adopt a more favorable posture toward crypto might also have a positive impact. However, whether Saudi Arabia and Qatar will eventually embrace cryptocurrencies is a subject of ongoing debate and speculation.
Written by Dilip Kumar Patairya