KARACHI: As cryptocurrencies grow in popularity among retail and institutional investors around the world, and are embraced by big names like PayPal and Mastercard, regulators and central banks are grappling with how to control the industry.
In April 2018, the State Bank of Pakistan (SBP) stated that cryptocurrencies are not legal and are not recognized, issued or guaranteed by the government.
Earlier this year, the High Court of Sindh, the Federal Government and the State Bank of Pakistan recommended a comprehensive ban on cryptos. One concern is that the asset could be used for money laundering and terrorist financing, and will deplete national foreign exchange reserves.
At the Karachi Literature Festival last weekend, Dr Reza Baqir, the Governor of the SBP, reiterated this position: “It is impossible for a law enforcement agency to have visibility into who is carrying out transactions and for what purpose. And, therefore, all over the world there is a lot of abuse [of cryptocurrency]including human rights violations, money laundering and many other things.
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He said the main objective of the central bank is to promote financial inclusion and end the misuse of the financial system, “particularly because Pakistan is a country that is on the FATF gray list. “.
But Pakistani citizens are undeterred. They continue to use online exchanges like Binance and Kraken to buy and sell crypto, partly spearheaded by celebrity Waqar Zaka, arguably the country’s biggest crypto advocate.
Analysts say the benefits, such as democratizing finance and reducing the negative impacts of high inflationary pressures on purchasing power, outweigh the harms. And banning cryptos would be ignoring their popularity in this country.
Yes, investing in crypto is risky. As the UK’s Financial Conduct Authority has warned, traders can lose all their money. Bitcoin, the largest crypto by market capitalization, rose 60% in 2021, but fell in 2022.
So, is a blanket ban the answer? Or does Pakistan need a strong regulatory framework? What about having your own digital currency?
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A ban would certainly draw the ire of Pakistan’s large cryptocurrency investor base: the country ranked third in the Global Crypto Adoption Index in 2020-21, after India and Pakistan. Vietnam. And the Federation of Pakistan Chamber of Commerce and Industry said it recorded around $20 billion worth of cryptocurrency in 2020-21.
“As crypto trading apps are among the most popular downloads in Pakistan, it is clear that people want accessible channels to buy, trade and use crypto and other digital assets. The government should not stand in their way,” said Reeve Collins, co-founder of the NFT BLOCKv platform. company registrar.
“Cryptocurrency’s potential to democratize finance depends on governments allowing its citizens access to these new markets,” he added.
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He didn’t mince words when he said an outright ban is “very concerning” and would only hamper Pakistan’s economic development “and unnecessarily hamper citizens’ access to financial assets that have benefited millions of people around the world”. He admitted that concerns about the illegal use of cryptos are not without justification, but they only reinforce the need for secure and verified trading platforms and smart regulation.
Collins also added that data shows that negative use cases of crypto assets are rare – Blockchain data platform Chainalysis found that illicit activity represented only 0.15% of all cryptocurrency activity. in 2021 – “meaning the downsides of crypto are far outweighed by the benefits it can bring to unbanked communities around the world.
Furthermore, he said an outright ban won’t stop people from investing because they see a chance to make a lot of money – it will only push this activity into unregulated parallel economies. , making crypto assets in banned jurisdictions even more popular, as has happened. in countries like Nigeria.
Kunal Sawhney, CEO of equity research firm Kalkine Group, had similar thoughts.
“Cryptos offer a chance to build wealth,” he said company registrar. “It cannot be ignored that bitcoin is a major asset by market capitalization and part of the list dominated by tech giants Apple and Microsoft.”
He said the reason S&P Dow Jones tracks crypto values by creating Bitcoin and Ether indices is that by allowing economies to trade in them, economies can give investors a fair chance to minimize the negative impacts of high inflationary pressures on the purchasing power.
On the other hand, he said cryptos are “the most misunderstood asset,” especially for young, amateur investors who mostly read headlines about bitcoin becoming a top asset by market capitalization. , but ignore its hyper-volatility.
Retail investors often fail to realize the profits they make on crypto assets due to the popular HODL (hold on for life) approach, he said, and seasoned investors may reserve profits at the expense of these amateur investors.
He also admitted that the illegal activities are real – Pakistan is on the Financial Action Task Force’s (FATF) enhanced watch list and was only held there recently – and he believes no action should be taken. regardless of how the country appears in the gray list. impedes its economic growth and access to capital.
Evamarie Augustine, Director of FinTech at Quantum Economics, noted that cryptos are popular in emerging markets because they facilitate remittances as citizens face complex remittance processes, currency devaluation and distrust of the government.
The recent pound devaluation and record inflation have prompted more Turks to buy crypto, she said, even after the country made crypto payments illegal in 2020.
If Pakistan goes ahead with the ban, it would not be alone – Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and China have all banned the digital asset.
India is leaning towards a similar ban, but the difference is that it wants to establish an official digital currency to be issued by the Reserve Bank of India. China too is moving full speed ahead to develop its own central bank digital currency (CBDC). Maybe that’s something Pakistan should consider.
Baqir is open to the idea of CBDCs – digital tokens, similar to cryptocurrency, issued by a central bank and pegged to the value of that country’s currency. They can help improve financial inclusion, reduce cross-border transaction costs and make payment systems more efficient.
“The ongoing work in many countries in many international institutions on CBDCs is welcome,” Baqir said. “This work, in our view, should be evaluated from the perspective of how CBDCs can contribute to each regulator’s goals.”
Copyright Business Recorder, 2022