Japan’s Soramitsu working on CBDC pilot in Pakistan
Japanese blockchain infrastructure firm Soramitsu has been contracted by the State Bank of Pakistan (SBP) to work on a pilot program for the digital Pakistani rupee.
Pakistan originally announced its intention to pursue a central bank digital currency (CBDC) or digital rupee back in 2019. However, unlike other Asian nations such as China, Cambodia and Thailand, it has not taken much action to progress such a digital currency since then.
SBP Governor Jameel Ahmad spoke at the Reuters NEXT Asia Summit in Singapore last month, outlining that the South Asian country was moving towards the establishment of a digital rupee and “building up [its] capacity” to launch it, and that a pilot project would be the next step. According to a report published by Nikkei Asia on Aug. 12, that pilot project is now underway.
CBDC specialist
Soramitsu already has a wealth of experience in this field. In 2023, it signed a memorandum of understanding with the Laotian central bank to launch a proof-of-concept CBDC project, with the Tokyo-headquartered company going on to play a pivotal role in the issuance of Laos’ Digital Lao Kip.
In Cambodia, it partnered with the National Bank of Cambodia to bring about the establishment of Bakong, Cambodia’s CBDC-like payment system. The company is also involved in CBDC projects in Papua New Guinea and the Solomon Islands, while spearheading a project aimed at enabling seamless cross-border payments among Asian countries.
Japanese funding
In the case of Pakistan’s pilot project, Soramitsu’s CBDC platform will facilitate the digital rupee while funding is being provided by the Global South Future-Oriented Co-Creation Project, an initiative from Japan’s Ministry of Economy that seeks to promote the formation of co-creation business models.
Infrastructure, such as the internet and power, can be unstable in some parts of Pakistan. Consequently, the proposed CBDC will incorporate the ability for the user to transact with it using their smartphone, even if the phone doesn’t have an active internet connection.
Digital transformation
Masato Toriya, an associate professor at Tokyo University of Foreign Studies and an expert on Pakistan, outlined the behavioral change that would be required in getting Pakistanis in rural areas to use such a currency. He stated:
“Many transactions in rural areas are cash-based, even for wage payments, and the rate of people with bank accounts is low."
However, cash-based systems have significant overheads, and it's thought that a CBDC could reduce such costs considerably. Last month, the Pakistan Institute of Development Economics published an article written by Dr. Ahmed Fraz, an assistant professor of finance with the organization, in which he claimed that the digital rupee pilot project is part of a “profound digital transformation” that Pakistan is moving towards.
Dr. Fraz asserted that a CBDC would enhance financial inclusion in Pakistan through the reduction of transaction fees, digitization of welfare payments and the financial inclusion of millions of unbanked citizens within the formal economy.
He added that the digital rupee “is not intended to replace existing payment systems immediately but to complement platforms” and to modernize Pakistan’s financial architecture.
