Daily Times

First things first, digital currency is not the same as cryptocurrency. The significant difference is the centralised operations behind a digital currency, whereas decentralised cryptocurrency relies on blockchain technology. Now, these may sound like layman terms to many familiar with cryptocurrency, but still, for many Pakistani and especially for senior financial professionals, this is an excellent opportunity to explore a new and exciting economic prospect.

The case of crypto is quite curious in Pakistan’s financial landscape. The government is still trying to weigh the possibility of opening avenues for cryptocurrency in the country. However, that has not stopped the early adapters from taking financial risks and trying their luck in the crypto world. Because of the crypto enthusiasts today, the cryptocurrency space has exploded in size over the last decade, with innovations and a collective market capitalization of more than $2.5 trillion.

Many governments and monitoring institutes worldwide find dubious about this financial mechanism is the intention these are developed with. It’s not uncommon for cryptocurrencies to be designed as software by a team that includes methods for issuance and is almost always meant to be free of government interference and control. This has been the fundamental success factor for these currencies, so today, more than ten thousand cryptocurrencies exist. If crypto-critics understood, they would recognise that blockchains provide us with immutable data. That is to say, the data stored within them cannot be altered. Ever.

This is why, in 2021, the average global cryptocurrency ownership rate was predicted to be 3.9 percent, with over 300 million cryptocurrency users. Additionally, over 18,000 establishments now accept cryptocurrency payments. As per other international statistics, the Bitcoin market cap reached US$1 trillion in February 2021 and constituted 66% of the total market capitalization of cryptocurrencies in 2020.

Ukraine is one of the first countries in the world to take a holistic approach to develop a sound regulatory framework.

According to the country-level data analysis, the top three cryptocurrency countries globally in terms of user counts are India, the United States of America, and Nigeria, with 100 million, 27 million, and 13 million users, respectively. The crypto users in India are only 7.3% of the total population, while Pakistan has about nine million users, a meager 41% of the population.

What will be interesting to see in the coming few years or perhaps months is how cryptocurrency’s acceptance will rely more on the human perception of it and not so much on its technical characteristics. We must observe closely now that countries around the world are adapting cryptocurrencies within their financial fabric.

El Salvador just legalized Bitcoin to provide foreigners with a more convenient money transfer method. Around six billion dollars in remittances entered El Salvador last year, accounting for 23% of the country’s GDP. The government expects that Bitcoin will save approximately $400 million in fees associated with money transfer providers such as Western Union. It’s not unlikely that Brazil will be the next country to accept Bitcoin as a legal tender. This country’s officials are working on a measure that would legalize the use of Bitcoin in all kinds of transactions, big and small. Estimates suggest that 48% of Brazilians support the use of Bitcoin. That means that 21% of Americans are opposed to utilizing Bitcoin, indicating that more than half of the population is unenthusiastic about it.

In an official statement, Brazil’s Federal Deputy Aureo Ribeiro said, “Bitcoin will soon be the currency in Brazil,” and Brazilians “will soon be able to buy houses, cars, and even McDonald’s with Bitcoin, after approval of its law.”

Following the success of Ukraine’s Central Bank’s pilot project for its digital currency, the e-hryvnia, the Ukrainian government moved fast to strengthen the country’s cryptocurrency infrastructure. It granted legal status to virtual assets in August and their parliament enacted a measure legalizing cryptocurrency in September of this year. Ukraine is also regarded as one of the first countries in the world to take a holistic approach to develop a sound regulatory framework, taking into account FATF guidelines on money laundering, crime, terrorist financing, and proliferation.

However, the million-dollar question is: what stage is Pakistan in the cryptocurrency arena, and are we ready to compete in the global crypto arena?

After the State Bank of Pakistan completely banned the crypto in 2017, the Sindh High Court in October 2021, ordered the government to regulate crypto-currency in consultation with all stakeholders, including representatives of the Security and Exchange Commission of Pakistan (SECP), State Bank of Pakistan (SBP), and the Ministries of Law and IT, within three months.

Today Pakistan is still struggling to find grounds for crypto in the country despite its huge financial potential, the Technology Movement under the guidance of a few financially and technically educated individuals, is gaining momentum in the country and has caught the eye of national financial institutions and policymakers.

On April 1, 2021, Jameel Ahmad, deputy governor of Pakistan’s central bank, the State Bank of Pakistan (SBP), stated that the organisation intends to introduce a digital currency by 2025. The official stated that the goal is to increase financial inclusion and efficiency while combating corruption. However, the central bank’s digital money will not be fully deployed until 2030.

The Government of Pakistan’s Digital Pakistan Policy aims to enhance citizens’ quality of life through improved information and communication technology. Pakistanis urgently require digitization to make lives easier. The strategy, however, does not cover digital assets and associated technology, and additional work is required in this area.

There is much work to be done: we require a policy framework, enabling legislation, market infrastructure, including the deployment of distributed ledger technology, clarity regarding accounting and taxation, reputable foreign partners, a designated regulator, and, of course, sophisticated professionals to run the show. The ensuing digital asset market model must be tailored to Pakistan’s economic needs and financial landscape, rather than to the convenience of global speculators. Preparation for the digital asset market and the establishment of a central bank digital currency would also enable Pakistan to make more educated and nuanced policy decisions about cryptos in the future. AS an economist, I truly believe in the effectiveness and benefits of cryptocurrency as reflected in the case studies of many countries. However, in Pakistan’s case, I truly hope that as more and more crypto enthusiasts join the marketplace, it will become an engine to drive the country towards crypto’s acceptability and change its course for economic betterment.

The writer is the Foreign Secretary-General for BRI College, China. He tweets @DrHasnain_javed.