The State Bank of Pakistan (SBP) proposed amendments to the SBP Act that would allow the central bank to issue digital currencies, including a potential central bank digital currency (CBDC), and regulate the Blockchain activities or cryptocurrencies as legal tender. These amendments would also permit state banks to process blockchain-based transactions and impose penalties for unauthorized digital currency issuance. However, this proposal still requires approval from the federal government and parliament to become law.
In 2018, the SBP banned financial institutions from servicing crypto-related transactions, citing risks like volatility and anonymity. In May 2023, the government, led by then-Minister of State for Finance Aisha Ghaus Pasha, announced intentions to ban cryptocurrencies entirely, aligning with Financial Action Task Force (FATF) conditions to avoid the “grey list” for money laundering and terrorism financing concerns. Despite this, crypto adoption has grown, with estimates of $18-25 billion in market value, driven by inflation exceeding 25% annually and a devaluing Pakistani rupee.
The November 2024 proposal marks a reversal from the 2023 stance, reflecting a pragmatic approach to harness digital finance for economic growth and foreign investment. Reports from Bloomberg interview with Bilal bin Saqib of the Pakistan Crypto Council, indicate plans to create a regulatory framework to encourage crypto trading, though no final legislation has been enacted yet. The process could take months, with potential tax implications like a 15% capital gains tax on short-term holdings being discussed, though not yet confirmed.
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Pakistan is in the process of developing a regulatory framework for cryptocurrencies, though no finalized rules are fully implemented yet. Prior to this shift, Pakistan maintained a restrictive stance. conditions aimed at avoiding the “grey list” for money laundering and terrorism financing risks. Bloomberg interview with Bilal bin Saqib of the Pakistan Crypto Council, indicate a push to formalize cryptocurrency trading with a regulatory framework.
The government aims to attract foreign investment and position Pakistan as a leader in blockchain-powered finance. Discussions include a “balanced pro-growth tax structure,” potentially a 15% capital gains tax on short-term crypto holdings, though this is not yet enacted. The process could take 12-18 months, involving stakeholder consultations from countries like the UAE, Nigeria, and Tu?rkiye.
As of now, cryptocurrencies are neither explicitly legal nor illegal. The SBP has not authorized any entity to issue or trade virtual currencies, and no specific tax laws address crypto transactions. Mining, NFTs, and other crypto-related activities remain in a legal gray area, with past enforcement actions (e.g., arrests by the Federal Investigation Agency for mining) citing money laundering concerns. Legalization could tap into Pakistan’s estimated $18-25 billion crypto market and its 15-20 million crypto users (one of the highest adoption rates globally).
A clear regulatory framework could attract foreign investors, leveraging Pakistan’s low operating costs and young population (60% under 30), boosting the fintech sector. Without swift implementation, Pakistan risks losing investment to regional competitors like India, which has already taxed crypto profits (30% on gains, 1% TDS on transfers) and registered exchanges with its Financial Intelligence Unit. Regulated crypto could enhance financial inclusion in a country where traditional banking penetration is low, offering alternatives amid high inflation (over 25% annually) and a weakening rupee (down 3.3% to 300 PKR/USD in May 2023).
Rules addressing AML (Anti-Money Laundering) and CTF (Counter-Terrorism Financing) could align Pakistan with FATF standards, reducing international financial scrutiny. Penalties for unauthorized activities would deter illicit use. Overregulation or delays could drive crypto activities underground, as seen with peer-to-peer platforms like Binance and Paxful thriving despite past bans. A tax regime (e.g., 15% capital gains) could generate significant revenue from a growing market, integrating crypto into the formal economy.
Without clear guidelines, tax evasion could rise, and enforcement might be difficult given the decentralized nature of crypto. Legal clarity could reduce public confusion and legal risks for users, supported by advocates like bloggers and influencers pushing for regulation. Political instability (e.g., Imran Khan’s arrest and protests in 2023) and bureaucratic resistance could stall progress, as seen with past flip-flops on policy.
Pakistan’s evolving regulatory approach reflects a balancing act between embracing crypto’s economic potential and mitigating its risks. If implemented effectively, the proposed framework could position Pakistan as a regional blockchain hub, driving investment and innovation. However, delays or overly restrictive rules might stifle growth, pushing activity into unregulated channels. The next 12-18 months will be critical as the government finalizes its stance, with impacts hinging on execution and global crypto trends.