Pakistan Implements Sweeping Ban on Cryptocurrency

Pakistan is putting in place a far-reaching ban on crypto services, in line with a previous announcement. Minister of State for Finance and Revenue Aisha Ghaus Pasha went so far as to declare that cryptocurrency will never be legal in the country.

Making good on a months-old threat, Pakistan has decided to apply a strict ban on crypto services conducted via the internet. According to a Wednesday report in the local news source ProPakistani, Pasha said during a session of the Senate Standing Committee on Finance and Revenue on May 16 that Pakistan will prohibit online cryptocurrency services within the country and will not reverse course.

This decision received support from other officials, including Sohail Jawad, the Director of the State Bank of Pakistan (SBP). Pasha said that the government will deny legal status to cryptocurrency in Pakistan indefinitely.

Pakistan Will “Never” Legalize Crypto

The proposal by the central bank and the federal government was first reported by local media outlets on January 12, 2022.

It was the first time the State Bank of Pakistan has taken a public stance on the crypto asset class. The Sindh High Court had previously urged the government to regulate digital currencies in October 2020. 

Salim Mandviwala, chairman of the committee, notes that Pakistanis had invested billions of dollars into cryptocurrencies. Last December, the Federation of Pakistan Chambers of Commerce and Industry said Pakistanis had invested $20 billion worth in 2021.

Pasha stated that the Financial Action Task Force (FATF) had required the ban on crypto as one of the conditions for removing Pakistan from its gray list in October. The gray list comprises nations that the organization deems to have shortcomings on the Anti-Money Laundering and Counter-Terrorism Financing fronts.

Nations have tried out various measures to avoid the stigma of landing on a blacklist or gray list, such as implementing strict Know-Your-Customer procedures. But the FATF is hard to satisfy.

The ban will likely mean exchanges are to cease official operations in the country. However, citizens will likely be able to access crypto services via unofficial channels, like VPNs.

Pakistan In Economic Crisis

Pakistan is currently in the midst of an economic crisis. Its inflation rate sits at 36.4% as of April—not a huge outlier globally, but it is the highest figure for the country since the mid-1970s.

Pakistan’s debt has doubled roughly every five years over the past 25 years, reaching Rs. 62.5 trillion by the end of the Imran Khan government in 2022. GDP also grew at a much slower rate. 

This unsustainable debt burden led to the debt servicing obligations exceeding the federal government revenue in the fiscal year 2022-23. The economic crisis played a role in a political standoff between Prime Minister Shahbaz Sharif and former Prime Minister Imran Khan, resulting in Khan’s ouster and nationwide unrest, calling for early elections. 

Despite attempts to secure an IMF loan, Khan’s government failed to address inflation and improve the economic situation.