The Pakistani government and national bank have often warned FinTech firms, banks, businesses, and individuals to abstain from providing crypto-related services and processing crypto payments.
But things are beginning to change. Considering the potential use of cryptocurrency for illegal purposes, the country’s Financial Action Task Force (FATF) has recommended adopting a new regulatory framework designed to lessen the possibility of crypto-based illegal activity, while enabling financial regulators to oversee the market properly. As such, Pakistan accepted the utilization of virtual currencies despite its previous negative stance.
That will happen with the adoption of a regulatory framework that classifies any cryptocurrency-related firms as Electronic Money Institutions (EMIs). Therefore, companies responsible for offering crypto-based services or processing crypto payments will need to obtain a special license and remain compliant with all regulations. Failure to do so will result in loss of license or activity suspension. These regulations generally refer to the monitoring of user funds and KYC/AML policies to guarantee the absence of illegal activities. Things are progressing for Pakistan’s cryptocurrency market, which is great news considering that many Pakistanis are still unbanked.
Aside from adopting new regulations, previous reports show that the Pakistani central bank and government consider issuing a central bank-backed digital currency (CBDC) by 2025. In a press statement, the deputy governor of Pakistan’s State Bank (SBP), Jameel Ahmad, noted that his institution was working on a CBDC aimed at “promoting financial inclusion and reducing inefficiency and corruption.” Another argument presented for the issuance of CBDC was: “It is our government’s policy to encourage the use of e-commerce amongst the public through awareness campaigns to promote a culture of e-commerce, which supports electronic business transactions at national, regional and international levels.”
Working on such a project makes sense since the bank is looking to become completely digitized by 2030. So far, no other information on the CBDC was given. It is not yet sure if its value will be tied to the Pakistani rupee or its focus will be on handling monetary settlements between banks and different institutions or on facilitating peer to peer and cross-border payments.
Pakistan is now among the latest countries to announce work on a local CBDC. It will be exciting to see if the CBDC trend’s popularity will exceed the crypto market, or if semi-anonymous, decentralized, and transparent digital currencies will prevail.