Early in April the State Bank of Pakistan barred local banks from trading in cryptocurrencies. “All banks, development financial institutions, microfinance banks and payment system operators, payment service providers are advised to refrain from processing, using, trading, holding, transferring value, promoting and investing in virtual currencies/tokens,” an SBP notice read.
The announcement comes amidst the Information Technology ministry continuing to stall the formal ban on cryptocurrencies, which has been in the works for at least a year. This is notwithstanding the question whether virtual currencies should be banned at all – which we will discuss in a bit.
But before we mull that, what needs to be underscored is how the local cryptocurrency trading market was impacted by the SBP notice.
The immediate result of the central bank’s action was the inadvertent shutting down of Urdubit – Pakistan’s cryptocurrency exchange – since local banks stopped dealing with virtual currencies.
Naturally, with the SBP barring the banks and the media reporting a ‘ban’ on crypto – which of course can only take place if and when a legislation is passed on it – local crypto traders took the back seat for a while.
Eventually the trading increased when the dealers realised that there is not a ban on crypto trading per se. Hence, they continued to find alternative routes to trade the crypto they owned, eventually realising only the mode of their transactions has changed.
But the biggest benefactor of the SBP action – ironically, and fittingly, depending on which way you want to look at it – was Pakistan’s only cryptocurrency: PakCoin. In the month after the central’s banks notice, and in turn the shutting down of Urdubit – which could no longer function because of a dependency on banks for deposits and withdrawals of money – PakCoin’s value has shot up by a mammoth 60 percent.
So this is what happened: the SBP notice to the banks, which was interpreted by media reports as an overall ban, actually brought crypto to the limelight, which was even truer for PakCoin. With this media exposure, and as things gradually became clearer, PakCoin benefitted from the eye balls with a massive hike in its trading.
However, the currency’s owners and crypto analysts maintain that a major factor behind this rise was the overall positive trend experienced by cryptocurrencies around the world. Even so, what it has highlighted that crypto trading continues in Pakistan, and its international and virtual nature means that there is no way to stop internet users from purchasing this commodity, which will be valued – just like any other commodity – by the demand-supply dynamics, and the coinciding money that people are willing to pay for it.
That is indeed the biggest question mark raised by critics over crypto: is it a convenient means to stash illegal wealth – or even shield legal wealth from taxation?
SBP’s action against crypto overlapped with the Reserve Bank of India issuing a similar order. Crypto is already banned in countries like China, Saudi Arabia, Bangladesh, Kyrgyzstan, Bolivia, Ecuador, Vietnam and North Korea. But at the same time it is the likes of US, EU, UK, and Asian countries like Japan and South Korea allow crypto exchange, and are looking at regulating initial coin offerings (ICOs).
Considering its global nature, what is needed is an international regulatory body to deal with crypto, which is precisely why the abovementioned countries that allow virtual currency trading are streamlining the trading in their own countries.
For as long as there are people willing to buy and sell something, there is no feasible way to completely devalue it.
Also, individual states – including Pakistan – would be better off passing legislation to regulate crypto and not ban it altogether. The current situation in Pakistan is the most dangerous, for a banking ban while allowing crypto trading means that other transfer channels for financing remain open, which can be exploited by proscribed groups amidst the ongoing FATF action against Islamabad.
n The writer is a Lahore-based journalist.