Pakistan's State Bank Proposes Legalization of Digital Assets

On November 4, the State Bank of Pakistan (SBP) unveiled a set of policy proposals aimed at legalizing digital assets, including cryptocurrencies, as legal tender in the country, which marks a remarkable shift in the regulatory landscape for digital currencies in Pakistan.

During a meeting led by SBP Governor Jameel Ahmad, the Monetary Policy Committee (MPC) presented amendments to existing policies that would empower state banks to issue digital currency. Additionally, the proposed changes would introduce penalties for digital currency issuers operating without official approval, ensuring a more regulated environment.

These proposals still require further government approval, but if passed, they could lead to the development of a central bank digital currency (CBDC), potentially a government-issued digital rupee. Furthermore, the amendments would allow state banks to facilitate digital payment services, promoting blockchain-based transactions, including buying, selling, and trading cryptocurrencies.

Historically, the MPC has been hesitant to embrace cryptocurrency. In May 2023, former Minister of State for Finance and Revenue Aisha Ghaus Pasha hinted at a possible ban on digital currencies. However, the appointment of Muhammad Aurangzeb, the former CEO of Habib Bank Limited, as the new minister in March 2024 signaled a change in direction. Under his leadership, the MPC has shown a more positive stance toward cryptocurrency.

In conjunction with the digital asset proposals, the MPC also announced a 2.5% cut in interest rates on November 4. This decision, attributed to a notable decline in food inflation, favorable global oil prices, and stable energy tariffs, presents an optimistic outlook for the economy.

The MPC forecasts real GDP growth for the fiscal year 2025 to fall between 2.5% and 3.5%, an indication of potential economic recovery.

Pakistan’s Historic Stance on Cryptocurrency

Pakistan’s central bank, the State Bank of Pakistan (SBP), has historically taken a cautious approach to cryptocurrencies, primarily due to concerns over their volatility and potential impacts on capital control. In 2018, the SBP issued a circular that prohibited all financial institutions and banks from offering services to cryptocurrency exchanges or facilitating transactions involving digital assets. This directive significantly restricted the legal framework for cryptocurrency activities within the country and hindered exchanges from operating through formal financial channels.

The circular explicitly stated that cryptocurrencies, including Bitcoin and Ethereum, are not recognized as legal tender in Pakistan. It raised concerns about the high level of anonymity associated with virtual currencies, which could potentially facilitate illegal activities. Furthermore, the SBP highlighted the lack of legal protection or recourse for individuals in case of financial loss related to these digital assets.

In a reaffirmation of this stance, in 2023, Minister of State for Finance and Revenue Aisha Ghaus Pasha declared that cryptocurrencies would "never be legalized in Pakistan," indicating a continued resistance to embracing digital currencies within the national financial system.

If the SBP's proposals gain approval, they could catalyze the growth of Pakistan’s cryptocurrency market, providing a framework to curb illicit trading and establish clear penalties for unauthorized digital asset exchanges. This step could position Pakistan as a more progressive player in the global digital finance arena, potentially attracting investment and innovation in the sector.