Pakistan has recently announced its decision to suspend cryptocurrency services in the country, citing the need to prevent illegal digital currency transactions in accordance with the guidelines of the global anti-terror financing watchdog.
The State Bank of Pakistan (SBP) and the Ministry of Information Technology have begun working on the ban, which was discussed during a session of the Senate Standing Committee on Finance and Revenue. Minister of State for Finance and Revenue, Dr. Aisha Ghaus Pasha, emphasized that cryptocurrency will never be legalized in Pakistan, as it goes against the conditions set by the Financial Action Task Force (FATF).
Sohail Jawad, the Director of SBP, supported Pasha’s views by stating that crypto transactions involve high risks and therefore will not be permitted in Pakistan. He highlighted that there are currently over 16,000 types of cryptocurrencies, with the market shrinking from $2.8 trillion to $1.2 trillion.
The officials has been destroying Pakistan in the name of #FATF & #IMF. Whatever happens in this country, according to the officials, it's either IMF's fault or FATF's.
May ALLAH soften their hearts for the country and common man. Ameen pic.twitter.com/ymHJ2sqbb6
— Crypto Pakistan 🇵🇰 (@Crypto_Pakistan) May 17, 2023
Concerns were raised by Senator Saleem Mandviwalla from the Pakistan Peoples’ Party (PPP) regarding the billions of dollars invested in the market. In response, the SBP official mentioned that the Federal Investigation Agency (FIA) and the Financial Monitoring Unit (FMU) are actively addressing these concerns.
Pakistan has witnessed a surge in cryptocurrency trading and mining activities, attracting significant interest through social media and online exchanges. Despite a ban on trading and mining virtual currencies implemented in April 2018, the mining industry has continued to grow, albeit with many mining farms being shut down. The majority of exchanges operate with undisclosed partners, evading regulatory oversight. However, the government has been persistent in its efforts to curb crypto trading.
The ban on cryptocurrency services in Pakistan is driven by the country’s commitment to meeting FATF requirements. Pakistan was removed from FATF’s gray list in October, which comprises countries deemed deficient in Anti-Money Laundering and Counter-Terrorist Financing measures but are actively working to address the issues. Minister Pasha stated that banning cryptocurrencies was one of the FATF’s conditions for Pakistan’s removal from the list. The SBP and the Ministry of Information and Technology are now working on legislation to enforce the ban.
The news of the impending crypto ban has prompted a wave of disapproval within Pakistan’s crypto community, particularly on platforms like Twitter. Many individuals expressed concerns over the government’s focus on banning crypto instead of addressing scams and fraudulent apps. Some highlighted the positive financial opportunities that crypto trading provides, especially for the impoverished population.
Although FATF does not have the authority to impose sanctions on non-compliant countries, its assessments can significantly influence government and corporate policies worldwide. For Pakistan, which is facing an economic crisis and engaged in tense negotiations with the International Monetary Fund, receiving a positive evaluation from FATF may be a political priority.
Crypto adoption in Pakistan has been relatively high, with reports suggesting that Pakistani citizens held approximately $20 billion worth of cryptocurrencies in 2021. The government’s opposition to crypto is not a recent development, as the SBP has been advocating for a ban since at least January. However, Pakistan does have plans to launch a central bank digital currency in 2025 and has recently implemented a national blockchain-based Know Your Customer platform.
Cryptocurrencies offer several advantages to a country, including the potential for financial inclusion, improved efficiency in transactions, and technological innovation. They enable individuals who lack access to traditional banking systems to participate in the global economy and facilitate low-cost cross-border transactions. Additionally, cryptocurrencies can enhance transparency and reduce corruption through their immutable and decentralized nature.
However, there are also concerns associated with cryptocurrencies. The decentralized and pseudonymous nature of transactions can make them attractive to criminals for money laundering and terrorist financing. The volatility of crypto markets can pose risks to investors and financial stability. Moreover, the lack of regulatory oversight and consumer protection measures in the crypto space leaves investors vulnerable to fraud and scams.
Banning cryptocurrencies in Pakistan has both pros and cons that need to be considered. Here are some key points on both sides of the argument:
Pros of Banning Crypto:
- Preventing Illegal Activities: One of the main reasons for the ban is to curb illegal activities such as money laundering, terrorist financing, and scams. By eliminating the use of cryptocurrencies, the government aims to create a safer financial environment and protect individuals from falling victim to fraudulent schemes.
- Regulatory Control: Banning cryptocurrencies allows the government to exercise better regulatory control over the financial system. It enables authorities to monitor and track transactions more effectively, ensuring compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
- Economic Stability: Cryptocurrencies are known for their volatility, and sudden price fluctuations can have a destabilizing effect on an economy. Banning crypto trading may help in maintaining financial stability by preventing excessive speculation and reducing the risks associated with unregulated digital currencies.
- Protection of National Currency: Cryptocurrencies operate outside the traditional banking system and can potentially challenge the authority of national currencies. Banning crypto protects the sovereignty of the national currency and prevents any potential threats to the country’s monetary policy.
Cons of Banning Crypto:
- Missed Economic Opportunities: Cryptocurrencies have the potential to drive economic growth and innovation. By banning crypto, Pakistan may miss out on the opportunity to attract investments, promote technological advancements, and stimulate entrepreneurship in the blockchain and crypto sectors.
- Financial Inclusion: Cryptocurrencies can offer financial services to the unbanked and underbanked population, providing them with access to a range of financial tools and services. Banning crypto may hinder financial inclusion efforts and limit opportunities for those who rely on digital currencies for their financial needs.
- Global Competitiveness: As other countries embrace cryptocurrencies and blockchain technology, a ban may put Pakistan at a disadvantage in terms of global competitiveness. Restricting the development and adoption of cryptocurrencies could hinder the country’s ability to participate in the rapidly evolving digital economy.
- Loss of Tax Revenue: By banning crypto, the government may lose out on potential tax revenues that could be generated from crypto-related activities. Taxing crypto transactions and imposing regulations could be a more balanced approach, allowing the government to benefit from the growing crypto industry while mitigating risks.
It’s important for policymakers in Pakistan to carefully weigh the pros and cons of banning cryptocurrencies to make informed decisions that balance the need for consumer protection, financial stability, and economic growth. Striking the right balance between regulation and innovation is crucial to harness the potential benefits while addressing the risks associated with cryptocurrencies.