Pakistan to Explore Legalization of Cryptocurrency

Islamabad is establishing the Pakistan Crypto Council (PCC) to look into regulating and legalizing the use of cryptocurrencies, according to media reports. Cryptocurrency refers to digital currencies that can be used to make purchases or investments using encryption algorithms. US President Donald Trump's endorsement of cryptocurrencies and creation of a "bitcoin reserve" has boosted investors’ confidence in it.  

The State Bank of Pakistan, the nation's central bank, has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of digital currencies, coins, and tokens. But the country has not officially banned the use of cryptocurrencies either, allowing about 20 million users to engage in crypto transactions. “We are coming on number three and four globally and there are many blockchain technology opportunities in Pakistan", said Bilal Saqib, the chair of the PCC.  

Top Countries Ranked By Global Crypto Adoption Index. Source: Chainalysis

Saqib told Bloomberg that regulatory sandboxes were being developed to create fast-track systems for crypto startups, enabling them to operate within a controlled and compliant environment.

There are media reports that Pakistan is working on lower electricity tariffs to attract crypto mining and blockchain-based data centers, aiming to utilize surplus power at marginal costs while fostering growth in the digital asset industry. Demand for grid electricity has been declining amid a solar power boom in the country. 

Cryptocurrencies are managed in a blockchain, which is a digital ledger that utilizes blocks of data and time stamps to create a digital transaction record.  Similar to a traditional digital spreadsheet, a blockchain contains a log of transactions. However, it uses a distributed structure in which data is stored on multiple machines, and all copies need to match before a transaction is considered valid. Blockchain in finance allows for faster and cheaper transfers and more accurate accounting records. Blockchain technology is seen as the future of fintech (financial technology). It can help streamline tens of billions of dollars worth of remittances from overseas Pakistanis.

Downplaying the fear of the abuse of cryptocurrencies for criminal activity, Saqib told the media: “Globally 0.24 percent cryptocurrency transactions are used for wrong things,” he said. “We want to use this technology for other things like real estate, agriculture and to unlock their liquidity.”

Talking about taxation, Saqib said the government intends to implement a “balanced pro-growth tax structure” to encourage foreign investment in the crypto sector. He believes cryptocurrency can significantly boost Pakistan’s fintech sector, positioning the country as a regional leader in digital finance. 

There is a lot of interest in enabling the use of crypto currencies around the world. It is not just developing nations like Pakistan. There are many countries actively developing regulations for cryptocurrencies, with some groupings like the EU implementing measures to protect users and combat criminal activities, while others, like the US, are slowly approaching regulation through existing market regulators like the SEC and CFTC. The jury is still out on the potential for success of such efforts. 

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Pakistan State Bank Targets Digital Currency by 2025 and Fully Digital Economy by 2030

A top official of the State Bank of Pakistan, the nation's central bank, announced that the institution aims to issue a digital currency (Central Bank Digital Currency or CBDC) by 2025, according to media reports.   Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments.  Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.

“As we move towards digital economy, it is absolutely important to ensure cybersecurity,” said the finance minister, according to Dawn newspaper.  Mr. Umar added that even a single high profile incident could cause irreparable loss of confidence to the economy and the banking system.

Deputy Governor Jameel Ahmad of the State Bank of Pakistan told the audience at the EMI launch that the central bank is working on a concept of issuing digital currency by year 2025 to promote financial inclusion and reduce inefficiency and corruption. Moreover, he said, the central bank would adopt evolving-realities of time and would be fully digitized and technology equipped by year 2030.

Cryptocurrencies use blockchain technology. Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented. A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds. The blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without a need for a central clearing authority. Potential applications can include fund transfers, settling trades, voting and many other issues.

Peer-to-peer cryptocurrencies such as Bitcoin were often explicitly aiming to disrupt the existing monetary order – central banks will aim for an evolutionary approach. In many ways, central bank digital currencies (CBDC) would simply be the latest in a long line of technological upgrades that central banks have been through over the years, according to ING Bank.

There's a long history of the use of money as a medium of exchange in trade. It started with metal coins in Mesopotamia, then changed to paper currency in China and bank checks (sakks) in Arabia before becoming electronic in modern age.  Here's how International Monetary Fund (IMF) chief Christine Lagarde answers the question "should central banks issue a new digital form of money?"

"A state-backed token, or perhaps an account held directly at the central bank, available to people and firms for retail payments? True, your deposits in commercial banks are already digital. But a digital currency would be a liability of the state, like cash today, not of a private firm. This is not science fiction. Various central banks around the world are seriously considering these ideas, including Canada, China, Sweden, and Uruguay. They are embracing change and new thinking—as indeed is the IMF. ...... I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy. This currency could satisfy public policy goals, such as (i) financial inclusion, and (ii) security and consumer protection; and to provide what the private sector cannot: (iii) privacy in payments".


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