Many in Pakistan were furious and indignant following the government’s recent decision to outlaw cryptocurrencies in the country. “I’m taking a stand against the government’s decision to ban cryptocurrency. I’m challenging this decision in court and fighting for our right to use cutting-edge technologies,” Umair Orakzai, a crypto-influencer said. Another crypto-focused community, Crypto Awaz, has questioned the lawmakers about the rationale behind imposing a blanket ban on digital currencies, instead of regulating it. Ergo, it’s worth looking at the state of cryptocurrency in Pakistan.
I'm taking a stand against government's decision to ban cryptocurrency. I'm challenging this decision in court and fighting for our right to use cutting-edge technologies. Let's come together to build a brighter digital future for Pakistan!#crypto #pakistan
— Umair.eth (@Umairorkz) May 18, 2023
The controversy began after the Pakistani government outrightly rejected the notion of legalizing cryptocurrency trading, leaving the nation’s expanding community of crypto-aficionados in a quandary. At a session of the Senate Standing Committee on Finance and Revenue, Minister of State for Finance and Revenue Aisha Ghaus Pasha said that banning cryptos is one of the requirements put forward by the Financial Action Task Force (FATF) which removed Pakistan from its grey list last year.
Here, the FATF is the global money laundering and terrorist financing watchdog which removed Pakistan from its “increased monitoring” list after four years.
The move got support from officials of the country’s central bank. State Bank of Pakistan (SBP) and the Minister added that the SBP and IT Ministry have started preparing the draft for the legislation.
However, many among Pakistan’s crypto-community are not convinced. For instance, well-known YouTuber and crypto-influencer Waqar Zaka questioned why Pakistan is being refused access whereas the UAE, which is also on the grey list, continues to grow as a crypto-hub.
Take a moment to watch this video! 🎥 Why is the @FATFNews hindering the Pakistani Government and everyday citizens from tapping into the potential of cryptocurrency? @CMShehbaz @Cointelegraph @CoinDesk @CNN @BBCBreaking @CNBC #FATFReplyNow #Cryptocurrency #Pakistan pic.twitter.com/V4btlmxQBS
— Waqar Zaka (@ZakaWaqar) May 18, 2023
Pakistan’s history of crypto-regulations
The ban on the trading of virtual assets in the South Asian nation hasn’t come like a bolt from the blue. In 2018, SBP issued a circular stating that digital assets like Bitcoin [BTC] and Litecoin [LTC] were not recognized as legal tender by the government. It also directed banks and other financial service providers not to deal with cryptocurrency exchanges.
According to Pakistan’s Express Tribune, the government had set up three distinct committees to decide whether to establish a legal framework for cryptos or ban it. One of the committees headed by the Deputy Governor of SBP proposed to ban the use of cryptos in the country in January 2022.
Pakistan’s growing crypto-adoption
The usage of cryptos has increased significantly in Pakistan in recent years. The country was ranked third in the Global Crypto Adoption Index for 2020-21, according to blockchain data platform Chainalysis. Quite understandably, this happened during the famous bull cycle which saw Bitcoin exploding from $9,000 to $69,000.
Moreover, a research study conducted by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) revealed that Pakistanis held nearly $20 billion in crypto-assets during 2020-21, reflecting an astronomical increase of more than 700%.
However, owing to the broader market downturn and the aforementioned regulatory crackdown, the country slipped to sixth position in the 2022 report. Nevertheless, the data also revealed that there is a higher level of awareness and demand for virtual currencies in the nation.
Has the government missed a trick?
Pakistan is in the grip of a severe economic crisis, characterized by soaring inflation, mounting public debt, and rapidly falling foreign exchange reserves. The Pakistani rupee (PKR) has plunged to record lows against the U.S. Dollar (USD), with one dollar being equivalent to 286 Pakistani rupees at the time of publication.
In the event of such devaluation, cryptos like stablecoins could have acted as a hedge against price fluctuations. As stablecoins like Tether [USDT] are pegged to a stable asset like USD, people can convert their savings into stablecoins to get exposure to the dollar.
In essence, cryptos have been found to be beneficial for countries going through political and financial instability. Chainalysis’s report also noted in its observations that countries in lower middle and upper middle income countries tend to have a greater reliance on cryptos than other countries.
Ergo, only time will tell us about the final state of cryptocurrencies in Pakistan.