Pakistan Plans to Ban Cryptocurrencies as Stance Hardens: Reports

The government of Pakistan and its central bank want to ban the use of cryptocurrencies, local media reported, citing a document submitted to a provincial court.

The document was compiled by a committee headed by Sima Kamil, a deputy governor of the State Bank of Pakistan (SBP). Other members included representatives from the Ministry of Finance, the Securities and Exchange Commission of Pakistan (SECP) and the Federal Investigation Agency of Pakistan (FIA).

The submission is the first time a clear position has been taken by the central bank, according to the media reports. The inclusion of government and regulatory representatives on the committee gives the report additional authority as a reflection of possible policy initiatives. In 2018, the SBP issued a circular prohibiting banks from dealing with cryptocurrency exchanges.

"This indicates that, unlike in the past, this is a policy move which has greater consensus and coordination," said Ali Farid Khwaja, a partner at Oxford Frontier Capital and chairman of KTrade KASB Securities, a stock brokerage in the capital, Karachi. "The SBP-led report has been accompanied with a coordinated crackdown on peer-to-peer network and illegal crypto operators by FIA and also warning letters issued by SECP."

Earlier this week, the FIA said it wants to talk to Binance as part of an investigation into a suspected scam it said has cost several thousand investors more than $100 million.

The committee submitted the report to the Sindh High Court, which was hearing a case about digital currencies and ordered its formation. It cited concerns on the use of crypto for money laundering and financing terrorism.

The case was brought by Waqar Zaka, a television host and crypto entrepreneur who wanted the court to rule that cryptocurrencies be declared legal as a large number of Pakistanis are interested in them. The country has the third-highest crypto adoption rate in the world, according to the Chainalysis Global Crypto Adoption Index.

The court referred the 38-page report to the finance and law ministries for consideration. It also ordered them to determine if a ban against cryptocurrencies is constitutional, according to a news report.

"The mindset if something is going wrong is to simply ban it," said Majyd Aziz, the former president of the Karachi Chamber of Commerce and Industry. "Rather than trying to figure out the background, more often than not they go for a ban before going through the process. You can't ban digital currencies."

The government has set up a separate committee to consider a regulatory approach following a call from the Financial Action Task Force (FATF), the global money laundering watchdog. Pakistan has been on the organization's gray list of countries since 2018, hurting its ability to get international financial aid.

“I don’t think this means Pakistan has decided to ban it," said Faisal Aftab, a co-founder of Zayn Capital. "I think they are still exploring regulation. The ambiguity is about whether Pakistan will consider cryptocurrencies as an asset. But it’s almost clear that it will not be considered a legal tender."

UPDATE (Jan. 13, 12:15 UTC): Adds committee composition in second paragraph, detail on court case in seventh, regulatory background, outside comments starting in eighth.