Could Pakistan’s Crypto Council pave the way for legalised digital currency?

ISLAMABAD: Cryptocurrency does not have any legal status in Pakistan, but the government’s growing interest in digital currency is evident through the establishment of the National Crypto Council.

The purpose of forming the Crypto Council is to propose and deliberate on legalising cryptocurrency in Pakistan. To achieve this, the government has appointed Bilal Bin Saqib — a Web3 sector adviser and investor working in blockchain technology — as the chief adviser to Finance Minister Muhammad Aurangzeb.

Over the past ten days, there has been rapid progress in Pakistan’s cryptocurrency sector at a time when crypto trading is happening without any legal framework in the country.

After his appointment, Bilal Bin Saqib stated that Pakistan is among the ten countries rapidly adopting cryptocurrency and still has room for further innovation in this sector.

Speaking about the formation of the Crypto Council, he emphasised that its purpose is to create a balanced framework that can help develop this industry in Pakistan.

Earlier last month, Finance Minister Muhammad Aurangzeb, addressing the first Pakistan Banking Summit in Karachi, highlighted the rise of digital banking and the informal use of cryptocurrency in local markets.

He urged the State Bank of Pakistan to approach the cryptocurrency sector with an open mind and consider the need for a legal framework for digital currencies.

Following the finance minister’s speech, the Ministry of Finance issued a statement to begin work on establishing the Crypto Council.

In an effort to explore the purpose and impact of this council on the crypto business in Pakistan, BBC Urdu spoke with individuals associated with the cryptocurrency sector.

According to them, the absence of a regulatory framework for cryptocurrency business has enabled the use of this sector for illegal transactions.

Purpose of Establishing the Crypto Council

Speaking to BBC Urdu about the government’s announcement to establish the Crypto Council and its purpose, Bilal Bin Saqib stated that the council aims to create a dedicated advisory body that will formulate a comprehensive policy and regulatory framework for digital assets and blockchain technology in Pakistan.

He explained that the council will address the uncertainty surrounding cryptocurrency in Pakistan to promote the digitization of the financial sector, encourage domestic and foreign investment, and create job opportunities for the youth.

Furthermore, he added that the council will help connect Pakistan to the global digital economy and ensure compliance with the Financial Action Task Force (FATF) guidelines.

Zafar Paracha, Secretary General of the Exchange Companies Association of Pakistan, told BBC Urdu that the council will assess the feasibility of cryptocurrency business in Pakistan, provide recommendations, and eventually pave the way for legislation.

He noted that while cryptocurrency currently lacks legal status in Pakistan, there is significant public interest and investment in this sector. Additionally, the gray market uses cryptocurrency for activities like money transfers, arms purchases, and other illegal transactions.

Why Was the Need for a Crypto Council Felt?

When asked about the need for the Crypto Council in Pakistan, Bilal Bin Saqib explained that Pakistan’s digital asset market, involving over a million Pakistanis, is growing rapidly, yet there is still no clear legal framework governing it.

He warned that without a clear and transparent regulatory framework, the development of Pakistan’s digital finance sector could stall, and both local and foreign investors might hesitate to invest in this industry. The absence of regulation also results in revenue losses for the government from activities happening in this sector.

On the other hand, Zafar Paracha acknowledged the importance of a regulatory framework for cryptocurrency in Pakistan but argued that the State Bank of Pakistan (SBP) is better equipped to handle this task due to its expertise and experience in the currency sector.

He expressed concerns that the establishment of the council at the government level would likely involve bureaucratic interference, and historically, such councils and committees in Pakistan often lead to delays rather than effective action.

Benefits of Establishing the Crypto Council

Addressing the question of how the Crypto Council would benefit the country, Bilal Bin Saqib stated that a robust regulatory framework could attract foreign investment in Pakistan’s digital assets sector.

He highlighted that the one billion dollars invested in property tokenization (blockchain real estate) in Dubai and the six billion dollars in tokenized green bonds in Hong Kong demonstrate how a clear regulatory framework boosts investor confidence.

The chief advisor to the finance minister further noted that the United Arab Emirates saw thirty billion dollars of investment in cryptocurrency from July 2023 to June 2024. Legalizing this sector in Pakistan would generate revenue and strengthen the country’s foreign exchange reserves.

“Similarly, it would create employment opportunities for the youth, as a legal framework would pave the way for new companies to enter this sector,” he added.

Zafar Paracha, Secretary General of the Exchange Companies Association of Pakistan, agreed with Bilal Bin Saqib’s views.

According to him, granting legal status to cryptocurrency would provide investors with a safety guarantee, much like how Pakistan’s local currency is backed by the government or how various international currencies are guaranteed by their respective governments.

“Without such guarantees, investment becomes risky due to the threats of theft and hacking in the digital asset space,” he warned.

How Many People in Pakistan Are Involved in the Crypto Business?

Although cryptocurrency has yet to gain legal status in Pakistan, many people are already engaged in this business. Last month, Pakistan’s finance minister acknowledged the informal activity in the crypto sector.

Bilal Bin Saqib estimated that around twenty million Pakistanis are involved in cryptocurrency trading and own digital assets.

He noted that Pakistan recorded twenty billion dollars in cryptocurrency transactions during the 2020–21 fiscal year.

Zafar Paracha added that Pakistanis had been involved in this sector for several years, dating back to when the value of cryptocurrency was just one dollar.