In the latest development, Pakistan’s state minister pointed to the potential risks of the cryptocurrencies connected with terror financing and money laundering. The minister also mentioned that the country has just come out of the FATF (Financial Action Task Force) grey list.
There has been a massive surge in the usage and investments in cryptocurrencies by the country, with billions of dollars being invested in this digital asset. The country is going through its worst economic crisis ever with the potential threat of a sovereign default.
Pakistan Rejects the Idea to Allow Crypto Trading
According to government officials, the country firmly rejected the idea of making legislation for crypto trading on 17th May 2023. It has cited the potential risks associated as the biggest reasons as the country has just come out of FATF’s grey list after 4 years.
The government also mentioned that digital assets can be exploited for financing terror groups. In 2018, the State Bank of Pakistan (SBP) announced that all crypto coins, such as Bitcoin, Ethereum, Pakcoin, etc., were neither considered legal tender nor did they have any backing from the government.
Dr Aisha Ghaus Pasha, the state minister for finance, briefed the National Senate Standing Committee that the government has adopted an official policy regarding crypto trading to not give it any permission since it isn’t feasible as the current has recently exited from the FATF grey list.
Another Senator, Farooq Naek also agreed with the government’s motive stating that crypto trading is highly volatile and should not be allowed. He also called for a complete ban on crypto coins due to their potential usage for financing terrorism when presenting the money bill.
Recent Exit from the FATF’s Grey List
The FATF placed Pakistan on the grey list in 2018 since the country’s financial system had various inefficiencies, paving the path for money laundering and terror financing. The international anti-money laundering watchdog removed the country from the grey list last year in October.
The SBP representatives in the Senate committee meeting also agreed with the government’s decision. They said that effective regulation of digital assets is not possible, pointing out the currencies are also banned in various countries like Canada and China.
According to Chainalysis, a blockchain data platform, Pakistan had the third ranking in the Global Crypto Adoption Index for 2020-21. Therefore, it experienced a rapid surge in cryptocurrency adoption in recent years. But the country slipped to sixth place in 2022.
The Federation of Pakistan Chambers of Commerce and Industry released a research report in 2021 which showed that the Pakistanis hold around $20 billion worth of crypto assets.
The report also mentioned that cryptocurrency along with the property sector has been the best-performing asset class throughout 2021. Digital currencies like Bitcoin and Ether use blockchain technology which is a decentralized ledger that records all the transactions on peer-to-peer networks.
Country Going Through the Worst Economic Crisis in History
Amid the rising investment in cryptocurrencies by Pakistanis, the country is suffering from a severe shortfall of dollars. It has been trying to resume the stalled IMF (International Monetary Fund) program since the last year but failed to do so.
The government only has close to $4 billion in foreign reserves, which is barely enough to cover the imports for a single month. Furthermore, the country also has to make debt repayments of around $100 billion in the next 3 years.
Experts believe that the country needs to rapidly reform their financial system and increase efforts to stop the rampant corruption and money laundering throughout the country to prevent itself from sovereign default.