Pakistan Implements Ban on Cryptocurrency
Pakistan has moved to ban cryptocurrency once more, with the country’s Minister of State for Finance and Revenue, Aisha Ghaus Pasha disclosing the move last week.
According to multiple local media reports within Pakistan, on May 16 Ghaus Pasha stated at a session of the Senate Standing Committee on Finance and Revenue, that cryptocurrencies are banned and “will never be legalized in Pakistan.”
FATF Grey List
Ghaus Pasha supported this position by outlining that the Financial Action Task Force (FATF) had set the banning of crypto as a condition for Pakistan’s removal from its “Grey List.”
FATF is an initiative of the G7 group of countries, first established in 1989. Its mandate is to develop policies geared towards combating money laundering, and most especially, terrorist financing. The FATF grey list includes those jurisdictions who are deemed to require increased monitoring relative to their efforts to keep money laundering and terrorist financing to an absolute minimum.
Pakistan had found itself on the FATF grey list over the course of a number of years. That meant reputational damage on an international basis, together with loss of investor confidence. It also signals the likelihood of weaknesses in a country’s financial system and in its financial controls. The categorization would have had an impact on the country’s ability to access international finance, impacted trade relations, and involved increased compliance costs.
Against that background, there may be a certain logic to the Finance Minister’s stance, despite it naturally being distasteful to those of us that support the development of decentralized systems, blockchain, and cryptocurrency. After an extended period on that Grey List, Pakistan was only removed from it in October of last year.
Currency devaluation
Notwithstanding that, governments in the developing world may have added incentives in banning cryptocurrencies. Their currencies are oftentimes unstable, and the Pakistani rupee is no exception. Cryptocurrencies like bitcoin find their greatest use case in countries that have their currencies devalued or economies that fall into the trap of hyperinflation relative to the sovereign currency.
In Pakistan’s case, the rupee plummeted to a record low against the US dollar in January. Naturally, that hurts ordinary citizens and provides the conditions under which people are more likely to investigate decentralized cryptocurrencies. On that basis, we shouldn’t be surprised to learn that the Pakistani government’s decision to ban crypto was publicly supported by Sohail Jawad, Director of the State Bank of Pakistan (SBP).
Pakistani banks are naturally following the government and the central bank’s lead, in implementing the ban. One circular obtained by CoinDesk stated: “As per regulatory instructions from the State Bank of Pakistan (SBP), any remittance of foreign exchange directly/indirectly outside Pakistan to overseas foreign exchange trading, margin trading, and CFD trading apps/websites/platforms through any payment channel is not allowed/permitted by SBP and such payments are inherently risky and illegal.”
Community reaction
Naturally enough, the crypto community internationally and locally, is not enamored by the move. However, people who have been in the space over the last few years are accustomed to ever-changing stances taken by governments as a reaction to a technology that they simply don’t know how to deal with.
Waqar Zaka, a Pakistani who works within the Web3 space commented previously on a ban that was implemented in Pakistan in 2017, only later to be found to be unconstitutional. Another Pakistani community member took to Twitter in taking a stand against the decision. Others still immediately considered how they could circumvent the ban.
Crypto has always benefited from jurisdictional arbitrage, and while bans are not in any way helpful, in the longer run, they will never stop the roll out and further development of this innovation.
