Has Pakistan’s Cryptocurrency Moment Arrived?
From Elon Musk’s tweets about Dogecoin to NFTs owned by Snoop Dogg and Madonna, the global boom in cryptocurrencies, and the broader blockchain space, is making front-page news in most Western countries. It is therefore ironic that the country with the third highest adoption of crypto (according to the Chainalysis 2021 Global Crypto Index) – Pakistan – has no regulation that allows it to nurture and grow the field based on its existing adoption. In fact, research by the Federation of Pakistan Chambers of Commerce & Industry reveals that in 2020-21, Pakistanis held over $20 billion in cryptocurrencies; a number that exceeds the country’s entire foreign exchange reserve.
The reality is simple. The Pakistani people have a clear desire to take part in the global crypto revolution, and it is the government that is responsible for dictating and controlling the terms on which they will interact with cryptocurrencies. Regulation is urgently needed to ensure that Pakistan can fully reap the benefits of a coming revolution, whether we like it or not.
India has made great strides in the field. The Indian government reversed its crypto ban and now has taxes on crypto income, creating a new revenue stream for the exchequer. Countries in the West have also realized that cryptocurrencies are here to stay. The UK, for example, has extensive tax legislation that dictates how income from cryptos is either liable to capital gains tax or to income tax. Further afield, El Salvador made history by becoming the first country in the world to have a cryptocurrency as legal tender, allowing people to buy their morning coffee or weekly groceries using bitcoin. Other countries in the region are also in various stages of legislation to either follow suit or regulate the various ways in which cryptocurrencies can be used.
If Pakistan is to compete on the global stage, adequate regulation is essential and the need of the hour.
First, regulation is needed to put in place adequate KYC procedures so that the fear of money laundering, or worse, can be mitigated by having the right controls in place. Large sums of crypto-assets are already being moved around by Pakistanis, so it cannot be emphasized that regulation for KYC procedures is an absolute must.
Second, regulation is needed in crypto to allow the government to benefit from taxation of crypto income. More and more people want to trade crypto or touch the crypto ecosystem in some way, shape or form, and the treasury not benefiting from these gains seems like a huge missed opportunity, in a country where it is otherwise a huge challenge to collect taxes. Furthermore, if we take this a step further and Pakistan can allow favorable corporate taxation for cryptocurrencies, Pakistan can become a hub in the region, attracting organizations that build on the blockchain or use cryptocurrencies, thereby encouraging new foreign direct investment. Third, for a country where the size of foreign reserves has been a cause for concern for most of its recent history, the ecosystem of having a regulated crypto could allow for an increase in foreign transfers with many of the newer blockchains, offering negligible transaction fees and almost instantaneous cross-border payments, which in turn can increase the amount and frequency of foreign remittances entering the country. Fourth, crypto regulation can help reduce capital flight. With the Pakistani rupee plunging against the US dollar, cryptos can offer a safe, but legal, store of value that prevents capital outflows. Finally, on a more holistic level, Pakistan has a rare, albeit fleeting, chance to be at the forefront of the next technology revolution by embracing and regulating cryptocurrencies.
The last time we had this chance was during the Web2 boom and Pakistan missed the boat, while China and India steamed ahead and managed to produce 301 and 101 unicorns respectively. Unicorn is a startup that has a valuation of over one billion dollars. Estonia, a country with less than a tenth of the population of Lahore, has managed to produce two unicorns, as has Bangladesh. Pakistan hasn’t even come close, with Pakistani startups struggling to make it big on the world stage. Cryptocurrencies and blockchain provide a second chance; a chance to be a part of Web3 and change the destiny of our technology front.
It is hoped that the powers that be in Pakistan take the time to understand the revolution that blockchain and cryptocurrencies bring and create relevant legislation to allow Pakistan to embrace the change and use it to its advantage for economic growth and prosperity.
Jafer Ali Shariff is a financial sector professional who lives and works in London and Paris.
