DIGITAL CURRENCIES AND THE STATE BANK OF PAKISTAN: LEGAL UNCERTAINTIES AND GLOBAL PRESSURES

Abstract

The worldwide increase in the trend of digital currencies, both decentralized cryptocurrencies such as Bitcoin and central bank digital currencies (CBDCs) issued by states, has led to the activation of regulatory and legal reactions in different jurisdictions. To developing economies such as Pakistan, such developments pose a unique challenge: how it can go about addressing international demands on modernization of financial systems, coping with local legal ambiguities, infrastructural oversights and financial insecurity threats. The State Bank of Pakistan (SBP) has mirrored a fringe policy, whereby it has released various statements in warning against the use of non-state digital currencies and at the same time pursuing a sovereign digital currency. Nevertheless, the legal framework that is in place in Pakistan is not clear and coherent enough to be able to regulate or incorporate digital currencies into the formal financial system.

In the following paper, the legal status of digital currencies in Pakistan is critically analyzed, taking into consideration the role of the SBP in national policymaking. It examines how the anti-cryptocurrency position of SBP correlates with the tendency in the world to give digital currencies first legal status, and then regulate them. The research paper also focuses on the consequences of Pakistan remaining in the grey-list by the international financial watchdog agencies like the Financial Action Task Force-FATF which have only increased more pressure of enforcing transparent, enforceable and risk-based financial regulations. Using the comparative legal methods of varied jurisdictions like India, European Union, and Nigeria, the paper outlines the potential frameworks of legal reformation that may enable to balance innovation and the financial stability.

Finally, the benefit of a holistic, legally favorable and comprehensive environment on digital assets in Pakistan is presented in the paper, where the need to distinguish between illicit crypto and authentic financial innovations, as well as grant consumer protection, guard non-confusion in regulations, and adherence to international best practices is also discussed. Otherwise, there is no chance that Pakistan will be able to keep up with the global economic trend of digitalization and at the same time being exposed to unregulated financial risks domestically.

Keywords:  Digital Currencies, State Bank of Pakistan, Legal Framework, Regulatory Challenges, Global Financial Pressures