Is it time Pakistan cashed in on crypto?

Express Tribune

02-03-2025

At the inaugural Pakistan Banking Summit 2025, Finance Minister Muhammad Aurangzeb emphasised the critical need to modernise Pakistan's banking infrastructure through comprehensive digitisation. A particularly noteworthy aspect of his address was the appeal to authorities, especially the State Bank of Pakistan (SBP), to cultivate a progressive and adaptable stance towards cryptocurrency. In light of Pakistan's historically strict laws governing digital assets, this proclamation represents a substantial shift. This change in viewpoint is especially relevant now that Pakistan is becoming a global leader in the usage of cryptocurrencies. With an estimated 20 million active participants in the cryptocurrency market, Pakistan stands at a crossroads: it can either embrace this evolving financial landscape or risk falling behind as global adoption accelerates.
The current state in Pakistan
Despite the historically cautious position of the State Bank of Pakistan (SBP) regarding cryptocurrencies, adoption rates have surged in recent years. In 2020-21 alone, cryptocurrency transactions in Pakistan reached an estimated US$20 billion, representing an unprecedented 711% increase. This dramatic growth propelled Pakistan to third place in the 2021 Global Crypto Adoption Index, surpassed only by Vietnam and India. It's important to note that the SBP currently prohibits entities under its regulatory purview, including banks and financial institutions, from engaging in virtual currency dealings.
Several factors contribute to this widespread adoption. Pakistan has a young, digitally savvy population that views cryptocurrency as both a global economic gateway and a hedge against inflation. A KuCoin report from June 2023 indicated that 17% of Pakistani Internet users aged 18-60 identify as cryptocurrency investors. Furthermore, the expanding prevalence of mobile wallets and user-friendly online payment platforms has created fertile ground for the organic proliferation of digital currencies.
It is crucial to recognise the diverse motivations and profiles of cryptocurrency investors in Pakistan. While some actively engage in trading established cryptocurrencies like Bitcoin and Ethereum, a significant segment utilises stablecoins, such as Tether (USDT), as a reliable store of value, especially in the face of prevailing economic uncertainties and fluctuations in dollar availability.
Lessons from the global landscape
Several countries have integrated cryptocurrency into their economies with varying degrees of success. By analysing these diverse global models, Pakistan can identify best practices and tailor its own regulatory framework.
In a landmark move in 2021, El Salvador became the first sovereign nation to adopt Bitcoin as legal tender. This audacious decision was primarily driven by the objectives of improving financial inclusion for its citizenry and diminishing reliance on the US dollar. The tangible outcomes have been noteworthy. The government's introduction of the "Chivo Wallet" has achieved remarkable uptake, with over four million downloads, encompassing more than 60% of the national population. Bitcoin adoption has facilitated a substantial 50% reduction in remittance fees, a significant benefit considering remittances previously constituted approximately 24% of El Salvador's total GDP. The issuance of $1 billion in Bitcoin-backed bonds represents a strategic initiative to secure financing for crucial infrastructure development and to attract foreign direct investment.
The United Arab Emirates has strategically positioned itself as a preeminent global centre for cryptocurrency adoption and blockchain innovation, particularly within Dubai and Abu Dhabi. The UAE's cryptocurrency trading volume in 2023 surpassed $25 billion, establishing it as one of the world's largest and most dynamic digital asset marketplaces. Proactive regulatory bodies, notably the Virtual Assets Regulatory Authority (VARA), have established transparent and enabling regulatory frameworks that have successfully attracted leading international exchanges, including Binance, Kraken, and Coinbase. The UAE has seen the establishment of over 1,000 blockchain startups, which has led to economic diversification, growth, and job creation in the technology sector.
Nigeria, the largest economy in Africa, exhibits one of the highest cryptocurrency adoption rates worldwide. Driven by the persistent depreciation of the Nigerian Naira and consistently high inflation rates exceeding 20%, cryptocurrency has increasingly become a vital financial refuge for millions of Nigerians seeking to preserve their capital. According to Chainalysis' Global Crypto Adoption Index, Nigeria ranks second globally in peer-to-peer (P2P) cryptocurrency transactions, indicating widespread grassroots adoption. Conservative estimates suggest that over 35% of Nigerians currently own or actively utilise cryptocurrency in various forms. The Central Bank of Nigeria (CBN), while initially imposing restrictions on cryptocurrency transactions, subsequently introduced the eNaira, Nigeria's own central bank digital currency (CBDC), signaling an official embrace of the evolving digital financial landscape and a strategic move to adapt to inevitable financial transformation.
Opportunities for Pakistan
The Finance Minister's recent pronouncements at the Banking Summit strongly suggest a potential paradigm shift in Pakistan's official approach to cryptocurrencies. Recognising the escalating adoption rates and the substantial potential benefits, the government is reportedly considering the formation of a National Crypto Council. This proposed council would be tasked with overseeing comprehensive policy development and proactively addressing the inherent regulatory challenges within the cryptocurrency domain. This proactive stance opens up several transformative opportunities for Pakistan.
Financial inclusion
A significant proportion of Pakistan's population remains unbanked and underserved by traditional financial institutions, with estimates from the World Bank indicating that approximately 110 million adults lack access to conventional banking services. Cryptocurrencies present a viable and readily accessible alternative pathway to financial empowerment. They enable individuals to participate in the burgeoning digital economy, conduct seamless transactions, and accumulate wealth, all without the prerequisite of traditional bank accounts.
Research from the Cambridge Centre for Alternative Finance indicates that cryptocurrency adoption has the potential to increase financial inclusion rates by a significant 20-30% in developing economies. This impact could be particularly transformative for marginalised communities and women, who often encounter systemic barriers in accessing conventional banking services. Furthermore, successful blockchain-based microfinance initiatives, exemplified by programs in the Philippines, have demonstrably expanded banking access to over 50 million individuals, underscoring the considerable potential for similar impactful deployments within Pakistan. User-friendly digital wallets, such as Metamask, Trust Wallet, and Binance Smart Chain, can facilitate convenient access to cross-border transactions, bypassing traditional banking fees.
Maximising remittances
Pakistan's economy is significantly reliant on remittances from its extensive overseas workforce. In 2023, Pakistan received approximately $31.2 billion in remittances, with average transaction fees through traditional services ranging from 4-7% per transaction. Cryptocurrencies offer the potential to dramatically reduce these costs: Blockchain-based solutions, including Bitcoin's Lightning Network, enable cross-border transfers with significantly reduced fees, as low as 0.1%. Ripple's XRP facilitates real-time payment processing, further minimising transaction costs for Pakistani families dependent on remittance income.
Studies suggest that the widespread adoption of blockchain-based remittance systems could generate savings exceeding $1 billion annually in transfer fees for Pakistan and this will directly increase disposable income for millions of households. Traditional remittance services like Western Union and MoneyGram typically impose fees ranging from 5-10% per transaction. The adoption of cryptocurrency-based remittance systems could yield substantial savings just like El Salvador's experience with Bitcoin-based remittances has demonstrably reduced transaction fees by up to 50%.
By leveraging the inherent efficiencies of blockchain technology, cryptocurrencies facilitate near-instantaneous and low-cost international fund transfers. This capability holds substantial positive implications for remittance-dependent families and this can enable them to receive funds more expeditiously and retain a larger proportion of their earnings due to significantly diminished transaction costs.
Economic growth and investment
By proactively establishing a favorable and well-defined regulatory framework for cryptocurrencies, Pakistan can effectively attract foreign investment and stimulate significant economic expansion within its burgeoning cryptocurrency sector. This influx of both domestic and international investment has the potential to catalyze job creation, accelerate technological innovation across multiple sectors, and bolster overall macroeconomic stability. The UAE successfully attracted $25 billion in blockchain-related investments in 2023 alone, demonstrating the considerable potential for Pakistan to replicate this success with a similarly clear and enabling regulatory framework.
A robustly regulated cryptocurrency ecosystem can effectively attract substantial international investment flows into Pakistan's technology and financial technology (fintech) sectors. Global market analysis projects the blockchain market to reach a substantial $1.43 trillion valuation by 2030, growing at a remarkable compound annual growth rate (CAGR) of 85.9%. PricewaterhouseCoopers (PwC) estimates suggest that digital asset markets, if effectively and appropriately integrated, could contribute between 5-7% to the GDP of emerging economies like Pakistan.
Towards a cashless society
The Government of Pakistan is actively pursuing a strategic transition towards a cashless economy for the expansion of access to digital financial services and payment solutions. Cryptocurrencies can play a pivotal and enabling role in this national transition and it can offer a secure, efficient, and transparent alternative to traditional cash transactions.
This strategic alignment with digital payments directly supports the government's broader economic modernisation strategy, aimed at upgrading Pakistan's financial systems and accelerating GDP growth. To further incentivise and expedite this transition, the government could consider implementing strategic reductions in taxes applied to digital transactions for both consumers and merchants.
Pakistan's strategic drive towards a digital economy can be significantly accelerated and enhanced through the strategic adoption of cryptocurrency technologies. The government's ongoing initiatives to expand digital payment infrastructure, including QR code systems and point-of-sale (POS) terminals, can effectively integrate cryptocurrencies to deliver: (1) instantaneous and frictionless payments with minimal intermediary costs and fees, (2) reduction in cash-based corruption, owing to the inherent transparency of blockchain-based transaction records on immutable ledgers, and (3) enhancement and expansion of the e-commerce sector, which is projected to reach a substantial $7.6 billion valuation by 2025 in Pakistan.
Technological advancement
Embracing cryptocurrencies and underlying blockchain technology can strategically position Pakistan as a regional leader in technological innovation within the rapidly evolving digital landscape. This proactive embrace can effectively attract both domestic and international talent, foster a vibrant entrepreneurial ecosystem, and generate new high-value opportunities in key technology domains such as software development, data science, and specialised blockchain engineering. Market research suggests that this nascent ecosystem possesses the potential to generate approximately $100 billion in aggregate income for technology professionals in Pakistan over the next 25 years.
Blockchain technology holds the potential to create thousands of high-paying skilled jobs within Pakistan's burgeoning technology sector. India's established cryptocurrency and blockchain industry currently employs over 75,000 professionals, with average annual salaries ranging from $50,000-$150,000 USD. Pakistan has the potential to generate an estimated $100 billion in income for technology professionals over the next quarter-century by strategically embracing blockchain development and related technologies.
Attracting foreign investment and tech startups
A well-regulated and transparent cryptocurrency industry can transform Pakistan into a dynamic regional hub for cutting-edge blockchain technology innovation and deployment. Global market forecasts project the blockchain industry to reach a staggering $163 billion valuation by 2029, which can present immense opportunities for Pakistani entrepreneurs, technology developers, and innovators. Countries like Singapore, which have proactively implemented clear and enabling cryptocurrency regulations, have witnessed blockchain-based startups contribute in excess of $200 billion in aggregate market capitalisation. With a predominantly youthful demographic profile, with over 65% of the population under the age of 30, Pakistan possesses the intrinsic potential to become a vibrant hotspot for fintech innovation and cryptocurrency-related ventures, contingent upon the introduction of appropriately favourable and enabling policies.
Challenges and mitigation strategies
While the prospective opportunities presented by cryptocurrency adoption are substantial and far-reaching, Pakistan must concurrently address the inherent challenges and potential risks associated with widespread cryptocurrency integration.
The existing absence of a clearly defined and comprehensive regulatory framework for cryptocurrencies within Pakistan has the potential to impede the organic growth of the cryptocurrency ecosystem and deter prospective investors, both domestic and international. The proactive establishment of transparent regulatory guidelines governing cryptocurrency trading, the implementation of clear licensing regimes for cryptocurrency exchanges and service providers, and the enforcement of robust Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols are critical initial steps to effectively mitigate this overarching risk and foster investor confidence.
The inherent volatility characteristic of cryptocurrency markets poses a significant risk for investors, particularly within emerging economies such as Pakistan, where macroeconomic and financial stability can be more precarious. To effectively mitigate this risk, proactive implementation of investor education and public awareness programs is essential. These programs should be designed to promote informed decision-making among investors, emphasise responsible investment practices within the cryptocurrency domain, and highlight the potential risks associated with market volatility. Nations like Nigeria have launched central bank digital currencies (CBDCs) to stabilise digital transactions while still offering financial inclusion. Pakistan could explore similar initiatives or introduce regulatory mechanisms such as stablecoin adoption to minimise volatility risks.
The broader cryptocurrency ecosystem is demonstrably vulnerable to cybersecurity threats, including cyberattacks targeting exchanges and individual wallets, as well as various forms of scams and fraudulent schemes. To comprehensively address these security concerns, the strengthening of cybersecurity measures across the cryptocurrency ecosystem is paramount. This includes promoting the development and adoption of secure platforms for cryptocurrency trading and storage, as well as proactively educating users about prevalent cybersecurity threats and effective risk mitigation strategies to safeguard their digital assets and personal information. Jurisdictions such as the United States have proactively strengthened security standards through the implementation of mandatory cybersecurity compliance frameworks for cryptocurrency exchanges and custodians, while countries like Singapore have enacted stringent consumer protection legislation specifically tailored to the digital asset space. Pakistan can improve cryptocurrency security by promoting secure trading, enforcing cybersecurity standards, and educating the public about scams.
The inherent pseudonymity and, in some cases, anonymity associated with certain cryptocurrencies can be exploited for illicit purposes, including money laundering, terrorism financing, and other forms of financial crime. To effectively address this legitimate concern, the rigourous implementation of robust Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) measures within the cryptocurrency ecosystem is critical. Furthermore, collaboration with international organisations, such as the Financial Action Task Force (FATF), is essential to ensure compliance with global standards. In fact, the FATF has explicitly called upon Pakistani authorities to enhance the regulation and oversight of the domestic cryptocurrency industry.
Building a supportive framework
To cultivate a comprehensively supportive and enabling framework for sustainable cryptocurrency growth and innovation within Pakistan, the government of Pakistan, in close collaboration with the State Bank of Pakistan (SBP), should formulate and officially adopt a comprehensive National Cryptocurrency Strategy. This strategic document should articulate a clear and long-term roadmap for responsible cryptocurrency adoption, proactively addressing anticipated regulatory challenges, actively promoting innovation across the cryptocurrency and blockchain space, and ensuring robust investor protection mechanisms are in place.
Concurrently, the government should develop and enact a comprehensive and adaptable regulatory framework specifically tailored to the cryptocurrency ecosystem. This framework should provide clear and unambiguous guidelines for cryptocurrency trading activities, establish transparent licensing requirements for cryptocurrency exchanges and service providers operating within Pakistan, and incorporate robust AML/CFT measures to mitigate financial crime risks.
Proactively educating the general public about both the transformative potential benefits and the inherent risks associated with cryptocurrencies is of paramount importance. Public education initiatives are crucial to fostering responsible investment behaviors, promoting informed decision-making among cryptocurrency users, and effectively preventing the proliferation of scams and fraudulent schemes within the cryptocurrency space.
Conclusion
Cryptocurrency presents a transformative opportunity for Pakistan to modernise its financial sector, stimulate sustainable economic growth across multiple sectors, and achieve enhanced financial inclusion for its citizenry. By strategically adopting a balanced and nuanced approach to cryptocurrency regulation, proactively addressing the inherent challenges and potential risks, and consciously fostering a supportive and enabling framework for innovation, Pakistan can effectively harness the substantial transformative potential of this emerging technology. This strategic embrace of cryptocurrency can pave the way for a more inclusive, resilient, and prosperous digital future for Pakistan's economy and its citizens.
The Finance Minister's recent statements signal a promising shift towards a more enabling stance. To realise cryptocurrency's multifaceted benefits – attracting investment and empowering citizens – Pakistan must carefully balance innovation and regulation. By diligently learning from the diverse experiences of other nations that have navigated similar pathways in cryptocurrency integration, and by implementing robust and adaptable safeguards, Pakistan can effectively navigate the inherent challenges and fully capitalise on the transformative opportunities presented by this rapidly evolving and impactful technology.
Ali Asad Sabir is working as project manager at Mahbub ul Haq research centre at Lahore University of Management Sciences (LUMS)
All facts and information are the sole responsibility of the author