In the Financial Stability Review, the State Bank of Pakistan (SBP) reiterated its stance on cryptocurrencies, emphasizing that it does not authorize or license any individual or entity for the issuance, sale, purchase, exchange, or investment in virtual currencies (VCs)/coins/tokens in Pakistan.
The SBP had previously issued a circular in 2018 stating that cryptocurrencies are not legal tender and are not guaranteed by the government.
Despite the ban on cryptocurrency trading in the country, there is an ongoing legal battle initiated by investors and traders seeking the legality of cryptocurrencies in Pakistan.
Globally, regulators have not yet reached a consensus on how to address cryptocurrencies, and further regulatory clarity is needed regarding their conceptualization, definition, and potential usage.
Countries such as China, Tunisia, Morocco, and Algeria have imposed bans on cryptocurrencies, and Pakistan is among the countries that have implicitly banned them.
The SBP explained its suggested ban on cryptocurrency trading and investment, citing concerns about the impact on monetary policy effectiveness, foreign exchange regimes, capital flight, financial stability, illegal activities, environmental consequences, and energy consumption.
While some benefits can be associated with crypto assets, such as financial inclusion and cross-border payments, realizing these benefits requires pre-conditions such as financial and digital literacy. Recent discussions on the subject acknowledge the merits of regulating crypto assets while not ruling out the option of banning them.
The appropriateness of strict bans or targeted restrictions depends on domestic conditions, policy objectives, and the authorities’ capacity constraints.
The SBP maintains its position on cryptocurrencies and warns about the potential risks and challenges associated with their use in Pakistan.
The ongoing discussions surrounding cryptocurrencies highlight the need for a balanced approach that recognizes the benefits of underlying technologies while addressing the potential risks and challenges associated with crypto assets.