Muneeb ur Rehman

The increasing use of digital currencies for making payments has caused adverse outcomes for the Pakistan’s money market as these currencies operate outside the domain of mainstream financial institutions. In this regard, Pakistan needs to devise a digital currency policy in order to regulate the digital currency market. Speaking to WealthPK, Zeeshan Ahmed, Country Manager of RAIN Financials, a global digital currency trading firm, said that the government lacked control over technology-based currencies circulating for transactional purposes.

“These decentralised currencies create discrepancies in the estimation of the total money supply, which is typically calculated by the State Bank of Pakistan (SBP).” In recent years, he added the adoption of cryptocurrency in Pakistan had experienced significant growth, resulting in the country currently ranking third in the Global Cryptocurrency Adoption Index.

According to a report by the Federation of Pakistan Chambers of Commerce and Industry, Pakistan has witnessed a remarkable surge in digital currency value, reaching approximately $20 billion during the 2020-21 period, indicating an extraordinary increase of 711% from the last five years. Zeeshan Ahmed maintained that one of the significant downsides of digital currencies was that they offered a potentially cost-effective alternative to Pakistanis living abroad to remit their earnings back home.

“Through the use of cryptocurrencies, individuals can bypass the traditional banking systems and the accompanying taxes, resulting in quicker and more affordable cross-border transactions, but denting the official inflow of remittances,” he explained. He expressed concern that the deficiency of digital infrastructure within SBP hampered its ability to monitor digital currencies within the money market.

“Additionally, the SBP has not yet established a well-defined legal framework for digital currencies.” Zeeshan Ahmed pointed out that cryptocurrencies were characterised by their volatile nature, often undergoing substantial price fluctuations over short periods of time. “This volatility causes risks for both individual investors and the overall stability of the financial system.” “Despite the warnings issued by the SBP, the trust in the digital currency remains steadfast, primarily driven by the precarious market conditions and the depreciation of the rupee,” he said.

The digital currency expert emphasised the need for developing a regulatory framework and a national digital currency policy in order to ensure the protection of financial markets and minimise vulnerabilities in the economy. The utilisation of digital currencies, which are decentralised and often operate independently, bypassing the conventional financial systems, can potentially present difficulties for financial stability and the implementation of a monetary policy. A comprehensive digital currency policy can address the challenges in this regard.

Credit: INP-WealthPk