Current Stance on Cryptocurrency in Pakistan
On Thursday, Finance Secretary Imdadullah Bosal reiterated that Pakistan continues to enforce a ban on cryptocurrency transactions, underscoring the urgent need for proper regulations in the sector. The State Bank of Pakistan (SBP) maintains that cryptocurrencies are not recognized as legal forms of currency. Transactions involving these digital assets are managed by a decentralized network, which differs significantly from traditional banking systems. In 2022, the SBP issued a formal advisory to the public, warning against involvement in cryptocurrency trading due to potential risks.
Legislative Efforts and Challenges
During a recent session of the National Assembly Standing Committee on Finance, MNA Sharmila Farooqi from the Pakistan People’s Party (PPP) introduced a bill aimed at establishing regulations for digital currencies. This initiative sparked various responses from committee members, illustrating the divided opinions on cryptocurrency within governmental circles. Farooqi emphasized the absence of regulation in Pakistan for cryptocurrencies, highlighting that the nation is gradually progressing toward a digital currency framework.
She also pointed out the implications of the country’s exit from the Financial Action Task Force (FATF) ‘grey list,’ a position it held due to allegations of inadequate measures to combat money laundering and terrorism financing. Farooqi raised critical questions about how Pakistan can ensure the security of cryptocurrency transactions against money laundering activities.
Context of the FATF Grey List
Pakistan was placed on the FATF grey list in 2018, a designation reflecting concerns over the country’s measures to curb financing of terrorism and money laundering. However, by 2022, the country had successfully been removed from this list. The implications of this transition are significant, especially in relation to the burgeoning interest in cryptocurrency and digital assets.
Bosal commented on the current lack of regulations governing cryptocurrency investments, noting that preliminary groundwork is being laid within the Pakistan Crypto Council (PCC), which aims to provide a framework for the regulation of digital assets and blockchain technology.
Establishment of the Pakistan Crypto Council
The Pakistan Crypto Council was officially launched in March of this year, with the objective of integrating blockchain technology and digital assets into the financial landscape of Pakistan. Officials such as Sohail Jawad from the SBP have pointed out the necessity of establishing legal frameworks to facilitate cryptocurrency operations within the country.
Jawad mentioned the establishment of the National Working Group on Digital Currency, which will provide suggestions and guidelines to the Crypto Council on the issue of cryptocurrency regulation. Interestingly, he highlighted that only El Salvador has legalized cryptocurrency as a form of legal tender, but the country is reconsidering its position, reflecting the tumultuous nature of cryptocurrency legislation worldwide.
Cryptocurrency Usage and Government Response
While the officials maintain a critical stance towards cryptocurrencies, some members of the committee, like Osama Ahmed, argued that there is no prohibition on holding cryptocurrencies in Pakistan. He pointed out that cryptocurrencies are already being utilized for transactions such as importing vehicles from Japan, questioning the SBP’s inaction regarding these developments. Ahmed also sought clarity on whether the government is keeping an eye on cryptocurrency mining practices.
Mirza Ikhtiar Baig, another committee member, underscored the involvement of the youth in cryptocurrency investments, urging the government to clarify its stance on the legality of cryptocurrencies. He highlighted that rising interest in cryptocurrency has resulted in increased values of these digital assets, advocating for explicit government communication on the legal status of cryptocurrencies.
Legal Framework and Approval Status
Finance Secretary Bosal acknowledged that although the establishment of the Crypto Council received executive approval from the Prime Minister, it has not yet secured legal recognition. He stated that the Council is expected to address the issues raised during the committee meeting and work towards establishing a regulatory framework.
In a pivotal announcement earlier, Bilal Bin Saqib, CEO of the PCC, introduced Pakistan’s first government-backed Strategic Bitcoin Reserve. He outlined plans for a national bitcoin wallet that would maintain digital assets already held by the state, suggesting an official commitment to maintaining a reserve while promoting a belief in decentralized finance without engaging in speculative activities.
Future Directions for Bitcoin Mining
Saqib disclosed that the government has allocated 2,000 megawatts of surplus electricity for bitcoin mining and artificial intelligence data centers as part of the initial phase of this undertaking. This move is intended to attract sovereign miners, technology companies, and clean energy partners from across the globe. Baig expressed concerns regarding this approach, querying why the government would support electricity rates for crypto mining at seven to eight cents per unit when industrial sectors are demanding rates of nine cents.
He argued that lower energy costs for industries could boost exports, urging the government to consider similar pricing strategies for residential consumers as well.
Critical Perspectives on Energy Allocation
Farooqi expressed skepticism regarding the decision to allocate 2,000 megawatts of electricity for crypto mining, raising questions about whether a comprehensive assessment of the country’s energy needs and challenges, particularly concerning load shedding, was conducted prior to making this decision.
Globally, the cryptocurrency market is gaining traction, with increasing use cases prompting several countries to recognize and regulate digital currencies. However, regulatory responses vary widely. Some nations, including El Salvador, have granted legal tender status to cryptocurrencies, whereas others like India and China maintain prohibitions on their use for goods and services, contributing to a complex and evolving regulatory landscape.
This mix of enthusiasm and caution reflects a broader trend where countries grapple with the challenges and opportunities presented by the rise of cryptocurrencies, underscoring the need for comprehensive regulatory frameworks to navigate this transformative financial technology.
