Interest in cryptocurrency around the world has grown exponentially in recent years and so have governments trying to regulate and control cryptocurrencies. China and other countries have also started taking concrete steps towards regulating cryptocurrencies and searching for Central Bank Digital Currencies (CBDC). The shift puts Pakistan among a host of other countries looking to capitalize on the digital finance opportunities, while lowering the associated risks. Digital currencies in the country are regulated and considered as legal tender as part of the country’s endeavor to alter Pakistan’s financial horizons.
Cryptocurrency in Pakistan—Is There Growing Interest?
This accelerated growth in cryptocurrency usage in Pakistan was driven by the promise of making the financial space historically unattainable available to a large number of people, swift and very low-cost cross-border transactions, and a possible thriving economy. Analytics firms like Chainalysis Reports say Pakistan is one of the highest adopters of cryptocurrency globally. This trend is happening because Pakistan has a young population, a tech-savvy demographic, and more internet users. Crypto assets additionally provide an alternative investment for individuals and businesses that live in a country where traditional banking access is limited to many of them.
But the lack of government regulation around cryptocurrency in Pakistan has left officials and finance regulators wary. Earlier, SBP had banned banks and other financial institutions from processing cryptocurrency transactions. The main driver of the government’s hesitation in the direction of digital currencies has been concerns about money laundering, terrorism financing, and the possibility of tax evasion. The caution in Pakistan’s stance has, until now, prevented the nation from joining other countries as they created regulatory frameworks for crypto assets.
Regulating Cryptocurrency: The Turn of a Page.
As interest in digital assets grows in Pakistan, its authorities have started to look into how to regulate cryptocurrencies.
The debate was whether or not it was even worth creating rules for digital currencies in the first place when the Internet itself wasn’t even regulated during its nascent years. However, in early 2024, the Ministry of Finance started consultations with the SBP and SECP to come up with policies that the country’s cryptocurrency might eventually be formalized and regulated. The potential change would give Pakistan a chance to turn digital currencies into something that is safe and transparent so they can only be used in that manner.
The financial framework of Pakistan aims to bring cryptocurrency under legal scope. The new move could bring new avenues to tax revenues and enhance financial transactional oversight. It could also, regulate cryptocurrency transactions and also support Pakistan’s digital economy, and help local startups and tech companies to enter the blockchain space. In fact, these regulations would have to be adjusted to allow a source of innovation to thrive without freezing it up.
CBDCs Exploring
Last month, Pakistan took a step towards regulating cryptocurrencies and is making efforts too to introduce its own version of Central Bank Digital Currency (CBDC). In short, a CBDC is a digital currency issued by the country’s central bank. A CBDC would be centralized like the fiat currencies bonded by the CBDCs as the SBP would control its issuance and regulation, backed by the Central Bank.
CBDCs have many advantages: they enable financial inclusion, lower the costs of cash transactions, and increase the transparency of transactions. In a country where nearly half of the population continues to be unbanked, CBDCs could advance financial inclusion to reach historically underserved communities and bring banking services into previously underbanked communities.
On the other hand, CBDCs are governed by the government, giving the government greater control over the money supply allowing them to have better control over the monetary policy and provide higher transparency in the transaction. The difference between CBDCs and cryptocurrencies such as Bitcoin or Ethereum is that CBDCs are meant to have a stable value in the national currency, whereas other cryptocurrencies, and hence also other cryptocurrencies, are based on decentralized networks that are subject to price volatility. A digital rupee would be under the control of the SBP and could help with cross-border transactions, therefore supporting international trade.
Challenges and Considerations
But there are challenges in their path to regulating cryptocurrency and developing a CBDC. The danger of cyber threats, privacy worries, and the potential to over-regulate, impact a perfect plan to set up effective regulatory plans for crypto assets. In order for Pakistan’s financial authorities to build a regulatory environment that will protect its users and uphold global standards while fostering innovation, they must do so.
Furthermore, suitable technological infrastructure as well as regulatory frameworks necessary to avoid cyber risks must be introduced when a CBDC is to be presented. A digital rupee will require the SBP to enter into partnerships with technology firms and international financial institutions for it to succeed.
Conclusion
This reflects Pakistan’s move away from unregulated crypto and has explored the pros and cons of a CBDC. If a framework is established for crypto assets, Pakistan can empower the use of safe crypto assets, attract investments, and reduce the risks of unregulated digital currencies. Furthermore, the study of a CBDC could also contribute to increasing financial inclusion and updating the payment system of the country.
If a virtual rupee could be introduced in Pakistan and a well-regulated cryptocurrency platform was introduced, it would be a huge step in direction of modernizing the country’s financial system, supporting economic growth as well as moving in line with the worldwide shift towards digital finance. Going down this path, the nation will be dependent on effective policy, and technological preparedness, so as to maximize the benefits of these digital assets and technologies.
