The central bank of Kyrgyzstan has announced that commercial banks can now open escrow accounts for crypto operations. This type of bank account will offer clients the option of keeping funds with a third party, thereby reducing risks for themselves until the deal is done.
The National Bank of the Kyrgyzstan 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.
Kyrgyzstan banks to establish escrow accounts for crypto users
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. The escrow account permission by the NBKR comes on the heels of several other crypto-related developments in the former Soviet republic.
In September, the Kyrgyzstan 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 Kyrgyzstan 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. Meanwhile, 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.
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