Digital Currency is well-known as Crypto Currency. Crypto is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don’t have a central issuing or regulating authority, instead using a decentralized system to record transactions and issue new units.
Increasingly seen as a potential replacement for physical cash, central bank digital currencies (CBDCs) are digital versions of cash that are issued and regulated by state-owned banks. In 2018, Pakistan’s central bank declared virtual currencies (VCs), including Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, and Pay Diamond, as illegal and prohibited their use in trading.
CBDCs are more secure compared to cryptocurrencies and are designed to complement existing physical cash and traditional forms of electronic money. The currencies are built on blockchain technology (DLT) and are intended to provide a secure and efficient means of conducting digital transactions.
Pakistan has been studying the options of launching digital currency since 2019 with the launch of laws for electronic money institutions (EMIs).
The regulations also cover other regulatory requirements including outsourcing activities, anti-money laundering and countering-financing of terrorism (AML/CFT), consumer protection, complaint handling mechanism, oversight, and regulatory reporting.
Despite not getting recognized as legal tender, the interest in cryptocurrencies has been on the rise in Pakistan, which recorded around $20 billion of cryptocurrency value in 2020-21, according to a research report by the Federation of Pakistan Chamber of Commerce and Industry (FPCCI).
The federal government has decided to launch digital currency in an effort to strengthen national currency, control flow of black money and facilitate financial transactions.
The State Bank of Pakistan (SBP) is actively supporting this initiative, ensuring that the Pakistani digital currency is issued with the government’s guarantee, much like traditional currency notes. To realize this vision, the SBP has engaged experts to oversee the process.
The government plans to gradually introduce the digital currency in the country. Reports said that the government would keep the digital currency and currency notes in parallel with the ratio of 80:20.
Digital currency will facilitate the cross-border trade and investment, besides providing financial services to unbanked persons. Furthermore, it holds the potential to enhance the efficiency, resilience, and reliability of the financial industry, as endorsed by the World Bank. It’s worth noting that blockchain technology is one form of distributed ledger with significant implications for the digital currency landscape.