Pakistan Can No Longer Adopt a Policy of Neutrality Regarding Regulations for Cryptocurrencies

Cryptocurrencies are growing at a never-before-seen rate (or cryptos) as it is emerging. Hedge funds and financial companies throughout the world are developing new vehicles specifically for these digital assets as cryptocurrencies have emerged as a new asset class. It goes without saying that people all over the world are dependent and addicted to cryptos when using their handheld gadgets. The goal of cryptocurrencies from the beginning has been to democratize finance, and it seems that moment has come. Cryptos offer multiple advantages over fiat currencies such as a decentralized structure with no central authority or governing body, no printing involved, enhanced security, privacy and anonymity, ease of use and accessibility, fast transaction speed, reduced or no KYC (know-your-customer), low transaction costs, etc. This uptrend brings with it emerging opportunities and potential pitfalls. While interest in crypto has exploded, the most significant challenge governments and policymakers around the world face today is how to regulate this asset class.

Across-border adoption

Different governments and regulators are adopting different stances on the matter. Although El Salvador is the first nation to recognize bitcoin as legal tender, cryptocurrency traders anticipate Venezuela and Paraguay to follow suit. According to reports, Russia is considering accepting cryptocurrency as payment for its oil and gas exports after the West imposed sanctions as a result of Russia's recent invasion of Ukraine. On the other hand, Ukraine has also used cryptocurrencies to finance its military campaign against Russia, drawing the attention of people who want to support the cause.

Pakistan's Predicament

The aforementioned limits were made applicable to all Pakistani corporations and limited liability partnerships through a notification issued by the Securities and Exchange Commission in 2020, following the central bank's lead. Despite this, the cryptocurrency industry is booming in Pakistan. Decentralized Finance operates in this manner (DeFi). There are rumours that cryptocurrency trading and tracking apps like Binance have more downloads than some of the biggest banks in the nation.

The IMF Report

One of the three chapters in the International Monetary Fund's (IMF) April 2022 Global Financial Stability Report is devoted to the threats to financial stability posed by the rapidly expanding fintech industry. The need for more regulatory oversight and globally uniform regulatory frameworks for DeFi and crypto has been highlighted in the research. According to the IMF report, regulating cryptocurrencies should be done in three steps: first, focus on the ecosystem's enablers, such as issuers, crypto exchanges, hosted wallet service providers, and market makers; second, form public-private partnerships to regulate codes through either ex-ante guidelines or ex-post code reviews; and third, create self-regulatory organisations.