SBP Announces New Regulations To Ensure Launch of Digital Currency (CBDC) by 2025

Pakistan registers itself in the list of countries trying to achieve CBDC (central bank digital currency) after India, China and Russia as the country surges ahead with a financial technology (FinTech) revolution, Pakistan’s central bank said on Monday that it has launched laws for Electronic Money Institutions (EMIs) as a step toward issuing digital currency by 2025.

Central bank digital currencies (CBDCs) is a way to enhance fiat capabilities by inheriting the financial prowess of technologies that power cryptocurrencies. 

The State Bank of Pakistan (SBP) signed in new laws for Electronic Money Institutions (EMIs),  non-bank entities offering digital payment instruments to ensure the timely issuance of a CBDC in the next three years. The World Bank helped Pakistan design the new regulations.

CBDC launch will have multifold benefits for Pakistan, number one being having an official cash-less transaction option. The second is that the regulations warrant preventive measures against money laundering and terror financing while considering consumer protection and reporting requirements.

SBP will issue licenses to EMIs for CBDC issuance. During the announcement, Finance Minister Ishaq Dar stated that using EMIs in promoting the digital economy will safeguard financial institutions from cybersecurity threats. Deputy Governor of SBP Jameel Ahmad envisions curbing fiat-induced corruption and inefficiency through CBDCs. He said:

“These landmark regulations are a testament of the SBP’s commitment toward openness, adoption of technology and digitization of our financial system.”

The FInance Minister also lauded the efforts from the state bank and the government. He said:

“This new category of institutions will complement the efforts of the government in creating an enabling environment to empower stakeholders in trade and commerce. This will help businesses in improving their productivity and contribute toward positioning the nation for global competition,” he said.

SBP is working on issuing digital currency by 2025, with the aim to promote financial inclusion and reduce corruption, and inefficiency.  Abid Qamar, spokesman of the SBP said dispelling the impression that the central bank was going to issue a cryptocurrency. 

“Our currency will remain the same, but as opposed to existing online payment services — where there is the backing of any financial institution — there will be not [be any] financial institution which we are going to bring in,”

Financial experts lauded the initiative as a landmark in FinTech space, terming it as the most progressive measure taken by the SBP in years. Khurram Schehzad, a senior financial analyst and CEO of Alpha Beta Core — a financial advisory firm, said:

“The launch of e-Money regulations, is a key landmark in our FinTech space. This way, Fintechs have been empowered to open and manage accounts themselves. This day is going to mark the inflection point for digital payments in Pakistan. We need this sort of speed and regulatory environment to set the ground for our FinTechs to flourish,”

Experts said that the initiative will place Pakistan among the few nations in the world who have adopted e-Money mechanisms. This initiative is capital intensive and would help Pakistan achieve financial inclusion, especially in the rural sector of the country.  It would also help small and medium enterprises, the farming community, and rural dwellers gain access to financial instruments. 

“By enabling this regulations authorities have enabled wider base of population whether Urban or Rural, to have access to finance through these new digital mode of payments from verity of players. This will require proper and frequent education of masses from issuers to make good use of such facilities and safety of these instruments” 

The business model must be made keeping in view the local market requirements and security threats as copy pasting a foreign model may backfire.

The SPB’s specified attention towards CBDC is justified as CBDC make the process of making payments more efficient, especially in cases where the cost of managing cash is high. This also helps improve financial inclusion because users of CBDCs do not need a bank account to hold CBDCs. Moreover, CBDCs have the potential to lower the barriers of entry for new firms in the payment sector. CBDCs also hold the potential to improve the transmission of the monetary policy as long as they bear interest. Therefore, the use of CBDCs can improve direct control over the money supply.

They have lower transaction costs. They can also provide a considerably cost-efficient alternative to cash for value storage. CBDCs do not incur costs on production, storage, transportation, and disposal.

As per Faiz Ahmed, Founder of Macro Pakistani, “The cost of printing currency has more than doubled from PKR 6.1 billion in 2014 to PKR 13.3 billion in 2020.”

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