Pakistan has joined the growing list of countries welcoming the movement towards Central Bank Digital Currency (CBDC) initiatives.
The country’s state bank announced a policy proposal package on Monday that would legalized digital assets like cryptocurrencies as legal tender.
SBP Governor Jameel Ahmad chaired a meeting where the Monetary Policy Committee (MPC) proposed amendments to its policy, enabling state banks to issue digital currency. The amendments would also penalize digital currency issuers operating without approval.
Although these proposals still require government approval at the next stage, their passage could enable the issuance of a digital rupee. Additionally, the report suggests that state banks could gain authorization to process digital payment services, supporting blockchain-based transactions and enabling cryptocurrency buying, selling, and trading.
The MPC had previously resisted embracing cryptocurrency. In May 2023, then-Minister of State for Finance and Revenue Aisha Ghaus Pasha suggested to reporters that the country was moving toward a cryptocurrency ban, as Cointelegraph reported.
However, in March 2024, former Habib Bank Limited CEO Muhammad Aurangzeb replaced Pasha and quickly signaled a reversal of the MPC’s anti-crypto stance.
On Monday, the MPC also announced a 2.5 per cent interest rate cut and highlighted several reported economic improvements. This points to a sharp decline in food inflation, favourable global oil prices, and the absence of anticipated adjustments in gas tariffs and PDL rates.
If the SBP amendments pass, this could signal a bullish outlook for Pakistan’s cryptocurrency and digital assets market. The amendments would also curb illicit trading and establish penalties for unauthorized digital asset exchange facilitators.
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CBDC’s give central banks control over monetary policy and supply
A CBDC is a digital form of a country’s official currency, issued and regulated directly by the central bank.
Unlike decentralized cryptocurrencies, a CBDC is a stable, government-backed digital asset designed to offer the same trust and security as traditional fiat currency. By providing a digital payment option, a CBDC enables faster, more efficient transactions and can extend financial services to unbanked or underbanked populations.
CBDCs also give central banks enhanced control over monetary policy and the money supply, allowing them to track transactions more effectively, reduce the costs associated with cash management, and potentially prevent illicit activities through traceable, secure transactions.
Numerous countries are exploring or implementing central bank digital currencies for goals like financial inclusion, payment efficiency, and reduced cash reliance.
In the United States, the Federal Reserve is studying a digital dollar to assess its benefits for inclusion and security, while the European Central Bank is evaluating a digital euro with a decision planned by 2026.
The UK’s Bank of England is examining a “Britcoin” digital pound, and Japan’s Bank of Japan has launched pilot tests for a digital yen. The Bank of Canada is also researching a digital Canadian dollar as a future option if digital currency use becomes widespread.
Some nations have already taken steps to implement CBDCs, notably China, which is piloting its digital yuan in multiple cities. The Bahamas launched the world’s first fully operational CBDC, the “Sand Dollar,” aimed at improving financial access across its islands, and Nigeria introduced the eNaira in 2021 to promote financial inclusion, particularly in rural areas.
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Multiple privacy concerns remain
Critics of CBDCs point to several concerns regarding privacy, government control, and potential risks to financial stability. Privacy advocates argue that CBDCs could enable governments to monitor individual transactions closely, undermining personal financial privacy and enabling excessive surveillance.
The centralized nature of CBDCs also raises fears of government overreach, with authorities potentially using programmable features to restrict or control spending. Financial institutions worry that a widely adopted CBDC could destabilize traditional banks by prompting people to move deposits to government-backed digital wallets, reducing banks’ liquidity and affecting their ability to lend.
Additionally, critics suggest that the rapid digitization of currency could make the financial system more vulnerable to cyberattacks, increasing the risk of breaches that could affect large numbers of people and businesses. These concerns reflect the need for a careful approach to CBDC design, with balanced safeguards to protect privacy and preserve financial stability.
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joseph@mugglehead.com
