The debate surrounding cryptocurrency in Pakistan has once again come into the spotlight as the State Bank of Pakistan (SBP) refused to legalize digital currencies without a proper regulatory and licensing framework in place. This development came during the first meeting of the newly established Pakistan Virtual Assets Regulatory Authority (PVARA), chaired by Bilal bin Saqib, Special Assistant to the Prime Minister on Blockchain and Crypto.
The meeting, attended by Finance Minister Muhammad Aurangzeb, senior officials from the State Bank, and policymakers, discussed the prospects of immediately legalizing cryptocurrencies and withdrawing the 2018 State Bank circular that prohibits virtual currency transactions. However, SBP strongly opposed the proposal, citing financial, legal, and security risks.
Why the State Bank Refused to Legalize Cryptocurrency
Absence of Regulatory Safeguards
The Governor of the State Bank emphasized that permitting loans and financial transactions in digital currencies without safeguards could destabilize Pakistan’s financial system. Unlike fiat currency, which is state-backed and regulated, cryptocurrencies remain decentralized and volatile.
The central concern is that without a clear licensing regime, cryptocurrencies could become a channel for:
- Money laundering
- Terror financing
- Illegal cross-border transactions
- Tax evasion
FATF Compliance Risks
Another major factor behind the refusal is the Financial Action Task Force (FATF), which monitors countries for compliance with global anti-money laundering (AML) and counter-financing of terrorism (CFT) standards.
Finance Minister Aurangzeb cautioned that if Pakistan allows crypto without strict regulation, it risks being placed back on the FATF grey list—a situation Pakistan only recently managed to exit after years of economic and diplomatic setbacks.
Current Legal Status of Cryptocurrency in Pakistan
Cryptocurrency has been a grey area in Pakistan’s financial landscape. In 2018, the State Bank issued a strict circular that:
- Declared cryptocurrencies such as Bitcoin, Litecoin, Pakcoin, Onecoin, Doscoin, Pay Diamond, and ICO tokens illegal.
- Prohibited banks and financial institutions from engaging in or facilitating crypto transactions.
- Mandated financial institutions to report any suspected crypto-related transactions to the Financial Monitoring Unit (FMU).
This effectively banned the use of cryptocurrencies in formal banking channels. However, digital currency trading continued informally through peer-to-peer (P2P) platforms, online exchanges, and underground markets.
Formation of the Pakistan Virtual Assets Regulatory Authority (PVARA)
The recent meeting of the Pakistan Virtual Assets Regulatory Authority (PVARA) marks a significant milestone. The body has been tasked with:
- Creating a comprehensive regulatory framework for digital assets.
- Issuing licenses to virtual asset service providers (VASPs).
- Ensuring compliance with AML/CFT standards.
- Encouraging responsible innovation in blockchain and fintech sectors.
Committees and Initiatives Under PVARA
The board approved the creation of several committees to handle specialized areas:
- Sandbox Experiments Committee – To test new crypto-related technologies in a controlled environment.
- Taxation Policy Committee – To propose ways of taxing crypto transactions.
- Regulatory Drafting Committee – To prepare the legal framework for licensing and supervision.
- International Relations Committee – To align Pakistan’s policies with global best practices.
Additionally, the board approved the establishment of a complaint portal, in collaboration with the National Cybercrime Investigation Agency (NCCIA), to address citizen complaints about scams, fraud, and cybercrimes linked to virtual assets.
Timeline for Regulation
According to experts in the meeting, it may take six to eight months before an effective regulatory framework is finalized. During this period, PVARA will meet twice a month to accelerate progress.
The government aims to develop a robust licensing system, ensuring that only regulated platforms and service providers can legally operate. Until then, the 2018 State Bank ban on crypto remains in force.
The Global Context: How Other Countries Handle Crypto
Pakistan’s cautious stance mirrors the global divide on cryptocurrencies.
- United States & EU: Allow regulated trading but require strict AML checks and tax reporting.
- China: Banned all cryptocurrency transactions to curb capital flight.
- UAE: Emerging as a crypto-friendly hub with government-backed licensing.
- India: Imposes heavy taxation but has not outright banned digital currencies.
By seeking a regulated middle ground, Pakistan is aiming to balance financial security with technological innovation.
Opportunities and Challenges for Pakistan
Potential Benefits of Regulation
If properly regulated, crypto could bring several benefits to Pakistan:
- Foreign investment in blockchain startups.
- Job creation in fintech and IT sectors.
- Improved remittance channels, reducing dependency on traditional money transfer systems.
- Integration into the global digital economy.
Risks of Premature Legalization
However, legalizing crypto too early could:
- Facilitate black market activity.
- Weaken currency control mechanisms.
- Increase cyber fraud cases, as many Pakistanis lack digital literacy.
- Jeopardize Pakistan’s international financial reputation.
The Role of Finance Minister Muhammad Aurangzeb
Finance Minister Aurangzeb, while supporting digital innovation, stressed that responsibility must come first. His dual stance reflects Pakistan’s strategy:
- Encourage blockchain and fintech investment.
- Avoid hasty legalization of crypto without safeguards.
He labeled the creation of PVARA as a “milestone in Pakistan’s economic development”, highlighting its role in preparing the country for participation in the global virtual asset economy.
Bilal Bin Saqib’s Vision for Virtual Assets
Special Assistant to the PM, Bilal Bin Saqib, played a key role in pushing for PVARA’s establishment. He emphasized that:
- The authority will foster innovation in blockchain technologies.
- A balanced ecosystem will be created where investors and innovators feel secure.
- Pakistan can emerge as a leading crypto-friendly country once regulations are in place.
His focus is not only on regulation but also on restoring public trust in digital financial systems.
Public Reaction and Crypto Community in Pakistan
The refusal to immediately legalize crypto has received mixed reactions:
- Crypto traders and investors expressed disappointment, arguing that delays may push Pakistan further behind in the global digital economy.
- Economists and banking experts supported the decision, warning that premature legalization could destabilize Pakistan’s fragile financial system.
- IT professionals and blockchain startups welcomed PVARA’s formation, seeing it as a step toward future opportunities.
Conclusion
The State Bank of Pakistan’s refusal to legalize cryptocurrency at this stage reflects a cautious yet strategic approach. While global adoption of digital currencies is rising, Pakistan faces unique challenges—ranging from FATF compliance to weak financial monitoring systems—that make premature legalization risky.
The creation of the Pakistan Virtual Assets Regulatory Authority represents a balanced way forward. By ensuring a robust licensing and regulatory framework, Pakistan hopes to reap the benefits of digital innovation while safeguarding against financial crime and instability.
In the coming months, much will depend on how quickly PVARA can finalize its regulatory regime. For now, Pakistan remains on the sidelines of the global crypto revolution, watching closely while preparing its own framework for entry.
