Pakistan’s Central Bank Governor reveals plans for a cautious yet ambitious journey toward creating its own digital currency. By conducting a thorough “cost and benefit analysis,” the country aims to harness the power of distributed ledger technology (DLT), the foundation of crypto assets. Excitement brews as Pakistan takes calculated steps to explore the vast potential of digital currencies while ensuring a careful approach along the way.
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History Of Digital Currencies in Pakistan
In 2014, Pakistan’s central bank established a dedicated cell to study cryptocurrencies. However, in 2018, they asserted that virtual currencies like Bitcoin did not hold the status of legal tender backed by the government. Despite this stance, behind the scenes, the central bank has been diligently developing its own rendition of a virtual currency known as the central bank digital currency (CBDC).
“To harness the potential of distributor ledger technologies, SBP is also researching central bank digital currency and is weighing the cost-benefit analysis of this venture,” Jameel Ahmed, governor of the State Bank of Pakistan (SBP) said.
He also said the following:
“We have almost examined all the jurisdictions that are either experimenting or have issued CBDCs in their respective jurisdiction. However, we will tread this path very carefully, especially with regards to design choices and use case analysis.”
In the race to modernize and digitize its financial systems, Pakistan faces stiff competition from regional and global counterparts. Nonetheless, the central bank’s governor highlighted significant challenges in the form of financial exclusion and reliance on cash.
According to the World Bank, Pakistan ranks third worldwide in having the largest unbanked adult population, with approximately 100 million adults lacking access to a bank account.
“Financial exclusion and high usage of cash is a major problem for Pakistan, in fact, people who have bank accounts face difficulty accessing formal financial services related to credit and savings from the service providers,” he said.
“Today those disrupting digital technologies provide us with the opportunity to make people financially included.”
What is CBDC?
A central bank digital currency (CBDC) is a form of fiat currency issued by a central bank, available solely in digital or electronic format. It shares similarities with physical cash but exists exclusively in the digital realm. Unlike cryptocurrencies, CBDCs are not decentralized and are not exposed to the fluctuations of the cryptocurrency market. Instead, they remain under the complete control and regulation of the issuing central bank.
Types of CBDC:
CBDCs come in two primary types: retail CBDCs and wholesale CBDCs. Retail CBDCs cater to the general public, offering direct usage for everyday transactions. On the other hand, wholesale CBDCs target financial institutions, facilitating their operations and interactions within the financial system.
Benefits Of CBDC:
CBDCs offer several key advantages, such as:
- Expanded Financial Inclusion: CBDCs enable easier access to the financial system for individuals without traditional banking services, promoting greater inclusivity.
- Enhanced Payment Efficiency: CBDCs can lead to faster, cheaper, and more secure payment transactions, streamlining financial operations.
- Strengthened Monetary Policy Transmission: CBDCs provide central banks with increased control over money supply and interest rates, enhancing the effectiveness of monetary policy implementation.
Pakistan’s Digital Revolution: PayPak and RTGS Leading the Way!
Pakistan has emerged as a trailblazer in the realm of digital platform adoption, wholeheartedly embracing cutting-edge technological advancements to reshape its financial landscape. Spearheading this digital revolution are several noteworthy accomplishments that underscore the country’s commitment to ushering in a new era of financial innovation and inclusivity.
Among the remarkable strides made, the introduction of PayPak, an indigenous payment scheme, stands as a shining example. This homegrown initiative has empowered individuals and businesses alike, providing a secure and seamless means of conducting transactions. By fostering the use of PayPak, Pakistan has not only reduced reliance on traditional banking services but also paved the way for a more financially inclusive society, as even those without access to conventional banking channels can now actively participate in the digital economy.
Another cornerstone in Pakistan’s financial transformation is the establishment of a robust Real-Time Gross Settlement system (RTGS). With its impressive daily processing capacity of Rs1.4 trillion, as reported by the central bank, RTGS plays a pivotal role in facilitating instantaneous and large-value fund transfers. This system has elevated the efficiency and reliability of payment mechanisms, ensuring smoother transactions within the financial ecosystem.
By capitalizing on the potential of these digital advancements, Pakistan seeks to revolutionize its financial landscape, making it more agile, secure, and accessible to all. As the country continues to embrace technological innovations, it solidifies its position as a forward-thinking player in the global digital economy, opening up new avenues for growth, development, and financial prosperity for its citizens.
Pakistan’s unwavering embrace of cutting-edge digital platforms showcases a resolute commitment to propelling its economy into the future – one that thrives on a cashless landscape and fosters financial inclusion. Through these transformative innovations, Pakistan places the power of financial empowerment directly into the hands of individuals and businesses, empowering them to navigate the financial realm with unprecedented ease and efficiency.
In this dynamic ecosystem, seamless transactions become the norm, bolstering economic growth and opening up boundless opportunities for prosperity. The digital revolution takes center stage as Pakistan’s visionary approach unlocks the true potential of a more connected and accessible financial landscape.
With each progressive stride, Pakistan forges ahead in a world that increasingly relies on digital solutions, where financial inclusivity becomes an irrefutable reality. As the country lays the foundation for a digitally empowered future, it leads by example, inspiring others to join the ranks of innovation and progress. In the ever-evolving landscape of finance and technology, Pakistan stands tall as a trailblazer, lighting the way for a brighter and more equitable tomorrow.
Pakistan’s Crypto Surge and Pioneering Path to a Sovereign Digital Currency
Despite the absence of formal recognition by the State Bank of Pakistan (SBP), cryptocurrencies have been witnessing an extraordinary surge in popularity across the nation. Pakistan’s astonishing rise to the third spot in the global crypto adoption index for the years 2020-21, trailing only behind India and Vietnam, bears testimony to the growing interest and active participation of its citizens in the digital asset space.
As the crypto wave continues to gain momentum, Pakistan finds itself at the precipice of a new era in finance and technology. Bolstered by the increasing adoption of cryptocurrencies, the country’s appetite for different types of digital currency has led it to embark on a groundbreaking journey toward the creation of its very own currency.
This leap towards the development of a sovereign centralized digital currency signifies a bold and visionary step by Pakistan’s authorities, propelling the nation into the vanguard of countries exploring the transformative potential of central bank digital currencies (CBDCs). Such an initiative holds the promise of redefining the financial landscape, enhancing financial inclusion, and fostering greater economic resilience.
While challenges and uncertainties accompany any paradigm shift, Pakistan’s enthusiastic embrace of this revolutionary endeavor demonstrates its unwavering commitment to embracing the future of finance. As the nation sets its sights on the horizon of a new digital currency, it stands poised to rewrite the narrative of financial innovation, carving a path that not only benefits its economy but also serves as an inspiration for the global community.
While the regulatory landscape around cryptocurrencies remains evolving, the significant growth in their adoption and value showcases a growing trend among Pakistanis to explore and invest in these digital assets. The increasing interest in cryptocurrencies reflects a wider global trend of individuals seeking alternative avenues for investment and participation in the digital economy. As the crypto space continues to evolve, Pakistan, too, finds itself navigating the complexities and possibilities presented by this emerging financial frontier with digital currency in mind.
In response to a constitutional petition filed in 2019, the court recently reviewed the central bank’s guidance from 2018, which had advised banks and payment system operators against dealing with virtual currencies. Subsequently, the court issued recommendations, taking into consideration the evolving landscape of digital assets and the growing interest in cryptocurrencies within the country.
The court’s deliberation shed light on the need to reevaluate the regulatory approach towards virtual currencies, considering their potential impact on the financial ecosystem and economic growth. The petition raised essential questions about the legality, benefits, and risks associated with cryptocurrencies, prompting a comprehensive assessment of the central bank’s earlier guidance.
As the cryptocurrency market gains traction globally, Pakistan finds itself at a crossroads, seeking to balance the potential benefits of embracing this type of digital currency with the imperative to safeguard against potential risks and protect the interests of its citizens. The court’s recommendations reflect the nation’s active pursuit of a pragmatic and well-informed approach to address the complex challenges and opportunities presented by the digitalized currency revolution.