- The governor of the country’s central bank says that cryptocurrencies come with more risks than benefits and urged the public to refrain from investing in Bitcoin.
- He said that cryptos tend to be used for illicit acts, are too volatile for investors, could lead to a widening grey economy and promote capital flight.
Pakistan investors will not be joining the booming global crypto economy, at least not if the country’s central bank has its way. The bank’s governor recently said that crypto carries more risk than benefits and urged local investors to stay away, just a month after a proposed blanket ban.
As with every other central bank, the State Bank of Pakistan is concerned that Bitcoin could replace the local fiat currency as a transactional medium. Speaking on Monday, governor Reza Baqir said that in emerging markets like Pakistan which have large informal economies, the risk of informal currencies like Bitcoin being used for transactions over the local fiat is heightened.
In his speech at the Annual Investment Forum in Saudi Arabia, he pointed out, “In Pakistan, we as the central bank have reached a conclusion as of now that, for us and in terms of the core objectives of the central bank, the potential risks far outweigh the benefits.”
The governor attacked the ‘speculative nature and acute price fluctuations’ of digital currencies. He also noted that their decentralized nature can pose a risk to the financial stability of any developing country.
Reza added:
Because of their anonymous nature, some cryptocurrencies are prone to be used for illegal economic activities. In such cases for countries like Pakistan, there is a risk of a widening grey economy and a risk of capital flight.
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Pakistan open to a CBDC but maintains its anti-Bitcoin stance
Pakistan has the world’s fifth-highest population at over 220 million people. As such, adoption in the country would be a great boost for Bitcoin and all the other altcoins.
However, this might just be a pipedream, with the government keen to crush Bitcoin. In January, the apex bank proposed a ban on all forms of crypto. Through its “risk-benefit analysis” committee, formed under a High Court directive, the bank claimed that crypto was depleting national foreign reserves and was giving a boost to illicit financing.
The State Bank is, however, open to the idea of a CBDC. Pakistan has an Internet connection of about 54 percent according to a recent study, making the issuance of a CBDC easier compared to its neighbors such as Afghanistan which has a 14 percent penetration.
The governor commented:
The work underway in many countries in many international institutions on CBDCs, is welcome. This work in our view should be evaluated from the perspective of how CBDCs can contribute to each regulator’s goals.
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