The International Monetary Fund urged Nepal to tighten supervision and overhaul its regulatory framework, saying crypto-related flows have risen sharply despite a ban on cryptocurrency trading.

On June 11 local time, blockchain outlet Decrypt reported that the IMF said cryptocurrency use in Nepal has spread to a level requiring close monitoring in terms of financial stability and illicit fund flows.

In its 2026 annual consultation report, the IMF said flows of stablecoins and unsecured cryptocurrencies into Nepal increased markedly from 2019 to 2024. It said overall adoption in Nepal is not very high compared with other countries, but highlighted that use continues despite being legally banned. The report also said the spread of cryptocurrencies "requires close monitoring".

Nepal in 2021, based on its central bank's judgment, deemed trading, mining and related activities illegal. But IMF data showed crypto inflows that were virtually negligible in 2020 exceeded $2.6 billion in 2021 and at one point topped 13 percent of gross domestic product. The ratio fell to about 4 percent of GDP in 2023, but rose again in 2024 to nearly 8 percent. The IMF also found that stablecoins accounted for a larger share and kept growing.

Cross-border flows were also significant. The IMF estimated Nepal's crypto-related cross-border flows at about 5 percent of GDP as of early 2025. That was higher than Bangladesh and Myanmar, but far below Vietnam, estimated at about 26 percent.

The IMF proposed a regulatory framework aligned with international standards as a solution. It said such a framework would strengthen financial stability, market integrity and consumer protection, while helping curb circumvention of capital controls and large-scale deposit outflows. It also urged Nepal to finalise its Financial Action Task Force implementation plan and exit the grey list.

Some in the market said regulation is more realistic than a ban. Mushir Ahmed (무시르 아메드), founder and chief executive of Finstep Asia, said authorities should regulate use cases rather than the technology itself. He said real-world uses that persist, such as trading and remittances, should be the target of regulation. He also said introducing regulation is reasonable to protect consumers and investors in trading, and stressed that authorities must strike a balance between oversight of cross-border payment networks, currency risk and capital control issues.

Ahmed singled out growing use of stablecoins in payments. He said the "Stablecoin Sandwich" is spreading significantly. It refers to a three-step payment structure in which fiat currency is converted into stablecoins for cross-border remittances, sent over a blockchain network, then converted back into the recipient's local fiat currency. By contrast, he assessed that El Salvador's Bitcoin experiment did not have a big impact on other countries' debates over bans and regulation. He explained that it confirmed Bitcoin is used more as an asset than as a means of payment.

The warning also came amid Nepal's political and social instability. Nepal shifted to an interim administration system after protests with the character of generational conflict in September last year. At the time, backlash grew after the government banned 26 social media platforms on Sept. 4. Downloads then surged for Jack Dorsey's messenger app "Bitchat", which operates via Bluetooth and mesh networks without the internet or accounts. It showed that blocking digital services instead led to the spread of workarounds.

The IMF plans to continue consultations with Nepal through post-financing assessments and annual consultations. As a result, Nepal's crypto oversight is expected to remain on the agenda for policy consultations with the IMF.