Pakistan has taken a firm stance against cryptocurrencies, announcing a ban on its legalization. Aisha Ghaus Pasha, Minister of State for Finance and Revenue, declared that cryptocurrencies would “never be legalized in Pakistan.”
This decision aligns with the conditions set by the Financial Action Task Force (FATF), aiming to keep Pakistan off the international finance watchdog’s “Grey List.” Consequently, the State Bank of Pakistan (SBP) and the Information Technology Ministry have been directed to initiate measures to prohibit cryptocurrencies.
This move executes the SBP’s proposal last year, announcing that the Pakistani government and its central bank would ban the use of cryptocurrencies, having submitted a document to a provincial court.
A committee led by SBP deputy governor Sima Kamil provided the document. Other members include representatives from the Securities and Exchange Commission of Pakistan (SECP), the Ministry of Finance and the Federal Investigation Agency (FIA) of Pakistan.
The inclusion of government and regulatory representatives on the committee gives the report additional authority to strengthen the possible policy initiatives. In 2018, the SBP issued a circular prohibiting banks from dealing with cryptocurrency exchanges.
Banks in Pakistan have began informing customers about the ban on crypto trading, citing regulatory instructions from the SBP.
“As per regulatory instructions from the State Bank of Pakistan(SBP), any remittance of foreign exchange directly/indirectly outside Pakistan to overseas foreign exchange trading, margin trading, and CFD trading apps/websites/platforms through any payment channel is not allowed/permitted by SBP and such payments are inherently risky and illegal,” said one message from a Pakistani bank.
These instructions explicitly said that foreign exchange remittances, such as overseas foreign exchange trading, margin trading and CFD trading through any payment channel, are prohibited. Banks have also formally warned customers against using debit or credit cards for crypto trading.
Crypto as last refuge
Cryptocurrencies have been gaining popularity among Pakistanis seeking to hedge against the devaluation of the Pakistani rupee and the country’s volatile political situation.
The Pakistani rupee has significantly declined, falling 3.3 percent to an all-time low against the U.S. dollar. Given the current import restrictions on physical dollars, the country’s retail sector perceives stablecoins as the most convenient method to access the greenback.
The annual trading volume for Pakistani-based wallets has increased to $25 billion, up from the $18-20 billion range last year. Pakistani retailers have been converting their salaries into stablecoins as a means of protection.
Ali Farid Khwaja, chairman of KTrade Securities and CEO of BlockTech Pakistan, explained that many individuals fear a sovereign default, particularly as the Pakistani government has struggled to secure support from the International Monetary Fund.
“I suspect that many people are buying USDT on crypto platforms as a way to get exposure to the US dollar,” Khwaja said.
According to Khwaja, even Bitcoin has performed favorably against the Pakistani rupee, attracting over 20 million Pakistanis to open accounts on crypto platforms during the crypto boom.
The ban on cryptocurrencies coincides with a period of political turmoil in Pakistan. Former Prime Minister Imran Khan’s recent arrest on corruption allegations, followed by his release after the arrest was deemed unlawful by the Supreme Court, has ignited tensions and led to widespread protests.
This backdrop of political and financial instability has further fueled the inclination of Pakistani retailers to seek refuge in stablecoins.