Last week, the Pakistani government announced a new ban on the usage of cryptocurrencies. However, the country is continuously seeing growth in crypto adoption. Pakistan is in the worst economic crisis with experts predicting a possible sovereign default in the coming months.
The Pakistani Rupee (PKR) has lost more than 50% of its value in the last year or so against the US dollar. Furthermore, the dwindling foreign exchange reserves are also a challenge for the country as it has barely enough dollars to cover the imports for a month.
Crypto Acting as a Hedge against the Inflation
Minister of State for Finance and Revenue Aisha Ghaus Pasha during her address to the National Senate Standing Committee stated that the country would never “legalize” cryptocurrencies.
According to the local media house, Pakistan has been banning cryptocurrencies to comply with the conditions set by the Financial Action Task Force (FATF) which has just taken the country from the “Grey List.”
However, it hasn’t stopped Pakistanis from making investments in digital assets as a hedge against inflation. There has been a growing crypto adoption as the citizens find it difficult to access US dollars.
Last month, Pakistan’s Dawn newspaper said that banks in the country officially warned their clients against using their services for crypto trading. However, Dawn also reported that there is a growing popularity of cryptocurrencies throughout the nation.
Zeeshan Ahmed, who is a country general manager at Rain Financial stated that the annual trading volume for local wallets has increased to $25 billion, which is up from $20 billion a year ago.
Fresh Bans on Crypto Trading by the Government
The Pakistani government announced a new ban on the usage of cryptocurrencies on 20th May 2023. Pasha told the Senate Committee that the State Bank of Pakistan (SBP) and the IT Ministry are working closely to work on the banning of cryptocurrencies.
The SBP took an official position on digital assets in Jan 2022 when it announced its plans regarding banning cryptocurrencies. Furthermore, commercial banks have also started telling customers in Pakistan that trading cryptocurrencies are illegal.
They have warned their customers to avoid using debit and credit cards for crypto trading. An official message from a local commercial bank stated that any indirect or direct remittance of foreign exchange outside Pakistan to any foreign exchange company is prohibited.
The bank quoted the SBP’s regulatory instructions regarding payments made through the banking channel to overseas foreign exchange trading platforms as risky and illegal. The SBP is also working on reforming the nation’s anti-money laundering laws.
Nation in a Political and Economic Turmoil
The ban on cryptocurrencies by the Pakistani government comes at a time when the nation is going through political and economic turmoil. Last week, former Prime Minister Imran Khan was arrested on allegations of corruption.
While Khan was released after a couple of days with the nation’s Supreme Court declaring the arrest as unlawful, it sparked violent protests and riots throughout Pakistan. Furthermore, it caused the PKR to slide to its lowest value in history ($1 = 300 PKR).
The nation is also failing to complete the (International Monetary Fund) IMF program, leading to speculations of a possible default of the country with a population of 220 million people. The growing inflation has also been a major concern for retail traders and individuals in the nation.
Many of them have now turned their eyes towards stablecoins to park their income and save it from losing its purchasing power.
Ali Farid Khwaja, BlockTech Pakistan CEO, and KTrade Securities Chairman said that people are looking at crypto coins as a means to score US dollars after the government failed to secure the IMF support.