Pakistan to Legalize Bitcoin and Cryptocurrency Through SBP Act Amendments?

The federal government has proposed amendments to the State Bank of Pakistan (SBP) Act aimed at legalizing digital currencies such as Bitcoin and cryptocurrency in Pakistan, while also permitting dual nationals to hold positions as governor, deputy governors, and board members of the central bank.

These changes, if approved by the federal cabinet and subsequently by Parliament, would mark a major pivot from SBP’s historically conservative stance on digital currencies such as Bitcoin.

Approximately a dozen of the modifications listed by the finance ministry have been approved by the Ministry of Law and have been forwarded to the federal cabinet. According to government sources, this novel strategy is the result of a shift in financial policy direction to align with current global trends.

One significant modification would involve repealing the prohibition on dual citizenship for individuals in decision-making roles within the SBP. The proposed deletion of the phrase “any person holding dual nationality” from section 13 of the SBP act.

This restriction was implemented in 2022 in accordance with the amendments that were influenced by the IMF; however, it is currently being debated. The timing of this proposition coincides with the conclusion of the term of SBP Deputy Governor Dr. Inayat Husain, and the government is reportedly eager to retain his services.

Finance Minister Muhammad Aurangzeb has recently emphasized the need to expand the talent pool for leadership positions, noting during a Senate Finance Committee meeting that nationality restrictions could be a limiting factor that needs to be addressed. Two of the three deputy governor positions may be vacant by November 8 if the proposed amendments are not approved promptly.

Among the key features of the proposed amendments is the provision that digital currency would be recognized as legal tender. This would mark the first time the SBP Act permits the licensing of digital currencies, allowing the central bank to issue them under a newly established definition.

If implemented, the SBP would take on the responsibility of regulating and facilitating digital transactions, the SBP would be responsible for the regulation and facilitation of digital transactions, as well as the establishment of a subsidiary to oversee the digital payment gateway.

Previous SBP advisories discouraged the public from using virtual currencies such as Bitcoin, citing concerns regarding security and anonymity. Nevertheless, the proposed modifications now allow the SBP to directly issue and regulate digital currency. The Act would also impose penalties for unauthorised issuance, such as fines that could be as high as twice the value of any digital currency that was unlawfully issued.

Additionally, the amendments are designed to enhance the SBP board’s authority in the approval of financial reports by extending it to encompass the central bank’s annual and half-yearly reports, as well as other economic assessments. This holistic approach is indicative of a substantial change in government policy and a commitment to modernizing Pakistan’s financial infrastructure.