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KARACHI: Pakistan has great potential to encash the windfall gains of billions of dollars in crypto assets of Pakistanis/dual nationals. This has been said in a paper of the Policy Advisory Board – Federation of Pakistan Chambers of Commerce & Industry (FPCCI) on “Prospect of Cryptocurrencies: A Context of Pakistan Policy Brief”.

The board aims to provide research-based expert input for policy advocacy, ease of doing business initiatives, and formalise the business community’s inputs on policies to various government departments, ministries, and institutions.

Pakistan records $20bn cryptocurrency value in 2020-21: report

The paper noted that it is imperative to first channelise the accumulated virtual currency assets of Pakistani investors which will help surge reserves as well as additional capital can be pumped into the already challenged economy.

A one-time asset declaration scheme along with some capital gain tax is highly recommended. Moreover, there is an urgency to develop a regulatory framework and national cryptocurrency strategy to adopt the ecosystem at the earliest to safeguard economic interest and minimize vulnerabilities to the new system. In any case, there are huge speculative gains existing in digital coins which may not be given the status of a legal tender but should be formalized as an asset class. In addition, crypto-linked exchange traded funds (ETFs) will attract both domestic and foreign portfolio investments.

This will help the Pakistan Stock Exchange to regain its status of an emerging market. Any undue delay in converting these into solid assets may divert them to other more convenient countries.

The influx of cryptocurrencies has taken the world by storm, with many countries still figuring out the possibilities of embracing the decentralized financial technology by carefully examining opportunities and threats rather than putting an outright ban or embracing it completely.

Bitcoin is the first decentralised digital asset, introduced in 2006, now reached the market capitalization of around one trillion US dollars. Throughout the world, countries are having difficulties in regulating this new decentralized technology-backed segment. Economies are indecisive about the future of cryptocurrency.

Small country like EI Salvador has adopted the Bitcoin as a legal tender whereas big economies like the USA, China and India are trying to put restraints on it either by introducing blanket bans or by adopting it with a limited scope. This study evaluates how accommodative/restrictive prevailing legislative framework is in Pakistan along with comparable countries in considering cryptocurrencies as (1) a legal tender, (2) an alternate digital currency, and (3) an asset class. Cryptocurrency adoption in Pakistan gained momentum in the last couple of years and the country now ranked 3rd in Global Crypto Adoption Index in 2020-21.

Pakistan recorded around US$ 20 billion of cryptocurrency value in 2020-21, showing an abnormal increase of 711 percent.

The current legal framework in Pakistan has held the cryptocurrency under the grey area. The State Bank of Pakistan ‘advised’ the general public to refrain from indulging into cryptocurrencies whereas SBP put ‘prohibition’ on entities under its umbrella on dealing in virtual currencies.

Pakistan’s trading and lending partners such as China and International Monetary Funds (IMF) have both levelled criticism against the technology. Moreover, the Financial Action Task Force (FATF) has called on the Pakistani authorities to better regulate the crypto industry. Investors are however currently using a peer-to-peer (P2P) crypto investing mechanism which renders investments in crypto assets undetected.

Copyright Business Recorder, 2022

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