Foreign investors are urging Pakistan to adopt cryptocurrencies and develop a national strategy to promote their use, according to a report released on April 27, 2023 by the Overseas Investors Chamber of Commerce and Industry (OICCI).
The report recommends developing facilitative regulations to promote investment and subjecting crypto exchanges to anti-money laundering (AML) and know-your-customer (KYC) protocols.
The OICCI also suggests authorizing licensed banks, registered money transfer agents, and trust companies to issue stable coins subject to strict compliance requirements. The chamber further calls for the development of a national cryptocurrency strategy to officially adopt the ecosystem and minimize vulnerabilities to the new system, considering cyber security and other fraudulent activities.
The OICCI also proposes integrating cryptocurrency exchanges with the Federal Board of Revenue (FBR) system to bring cryptocurrency transactions under the tax net. It recommends that the government impose an adjustable advance tax of 1-2 percent on cryptocurrency transactions.
The report suggests inviting leading cryptocurrency exchanges such as Binance and Coinbase to become licensed in Pakistan to boost foreign direct investment and better regulate the exchanges. The chamber also calls for awareness campaigns to educate the masses on the risks of investing in cryptocurrency to enable more informed decisions.
The OICCI suggests that if international remittances are allowed through crypto, Pakistan could save millions on banking fees, and transactions could be processed faster. El Salvador reportedly saved more than $400 million in remittance fees just last year after adopting Bitcoin as legal tender.
The report concludes that adopting cryptocurrencies could bring foreign investment to Pakistan’s power sector, blockchain-based projects, crypto mining industry, and futuristic initiatives that could revolutionize the country.
Digital currencies, which exist in virtual or digital form and use encryption to secure transactions, are gaining popularity in Pakistan, despite the lack of regulatory framework around them. Countries like Bahrain, Canada, Australia, Mexico, USA, and the UK have established regulatory and taxation frameworks for digital currencies, but Pakistan is yet to do so.
The ownership of cryptocurrencies in Pakistan amounts to $20 billion, which is double the country’s foreign reserves in the State Bank of Pakistan (SBP), according to a report by the Federation of Pakistan Chambers of Commerce and Industry. The report states that Pakistan is ranked 3rd in the Global Crypto Adoption Index 2020-21, with the highest recorded growth in cryptocurrencies at 711% from 2020-21, just behind Vietnam and India.
Governments worldwide are experimenting with Central Bank Digital Currencies (CBDCs) to counter the rising demand for digital currencies. CBDCs are backed by a government and controlled by a central bank, providing stability to households, consumers, and businesses to exchange digital currency. CBDCs also allow central banks to implement monetary policies to provide stability, control growth, and influence inflation.
Legalizing cryptocurrency trading in Pakistan can lead to high economic growth, generating at least $100 million in taxes or Rs. 20 billion in a year, as well as employment opportunities, saving millions in transaction fees, and better control of money laundering and other illegal activities that currently go untraceable through digital currencies.
The State Bank of Pakistan (SBP) and the Securities & Exchange Commission of Pakistan (SECP) refrained all banks, DFIs, payment system operators, and payment service providers from using, trading, holding, transferring value, promoting, and investing in virtual currencies and tokens. This decision was made to avoid inviting the ire of the International Monetary Fund and the Financial Action Task Force, as digital currency markets are highly speculative and face risks of financial fraud, illicit financial flows, and perceived use by terrorists.
A general lack of awareness and low literacy rates in Pakistan creates opportunities for fraudsters to lure common people into crypto schemes with promises of ultra-high returns. In January 2022, Pakistan’s Federal Investigation Agency (FIA) revealed that thousands of Pakistanis lost their life savings in a $100 million cryptocurrency scam, with an estimated 37,000 people, mostly from middle-class households, being defrauded after investing money in a scheme that promised to multiply their funds.
