From Elon Musk’s tweets about Dogecoin to NFTs owned by Snoop Dogg and Madonna, the global cryptocurrency boom and the broader blockchain space are making headlines in most Western countries. It is therefore ironic that the country with the third highest crypto adoption (according to the Chainalysis 2021 Global Crypto Index) – Pakistan – has no regulations that allow it to nurture and grow the field based on its existing adoption. . In fact, research from the Federation of Pakistan Chambers of Commerce and Industry reveals that in 2020-2021, Pakistanis held over $20 billion in cryptocurrencies; a figure that exceeds the country’s entire foreign exchange reserve.
The reality is simple. The people of Pakistan clearly want to participate in the global crypto revolution and it is up to the government to dictate and control the terms under which they should interact with cryptocurrencies. Regulation is urgently needed to ensure that Pakistan can reap the full benefits of a coming revolution, whether we like it or not.
India has made great strides in this area. The Indian government has made a complete U-turn on its crypto ban and now it has taxes on crypto income, creating a new revenue stream for the treasury. Western countries have also realized that cryptocurrencies are here to stay. The UK, for example, has comprehensive tax legislation that dictates how income from cryptos is subject to capital gains tax or income tax. Further, El Salvador made history by becoming the first country in the world to have 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 follow suit or regulate the different ways in which cryptocurrencies can be used.
If Pakistan is to compete on the global stage, proper regulation is paramount and the urgent need of the hour.
First, regulation is needed to put proper KYC procedures in place, so that fear of money laundering, or worse, can be allayed by putting the right controls in place. Vast sums of crypto assets are already being moved by Pakistanis, it cannot be overstated that regulation of KYC procedures is an absolute must.
Second, crypto regulation is needed to allow the state to benefit from taxation on crypto income. More and more people will be trading crypto or touching the crypto ecosystem in some way and the treasury not benefiting from these gains seems like a massively missed opportunity, in a country where tax collection is otherwise a major challenge. Moreover, if we go a step further and Pakistan can allow favorable corporate taxation for cryptocurrencies, Pakistan could become a hub in the region, attracting organizations that rely on blockchain or use cryptocurrencies, thereby encouraging new foreign direct investment. Third, for a country where the size of its foreign exchange reserves has been a concern for most of its recent history, having a regulated crypto ecosystem could allow for an increase in foreign remittances with many new blockchains, offering negligible transaction fees and near-instantaneous cross-border payments, which could in turn increase the amount and frequency of foreign remittances entering the country. Fourth, crypto regulation can serve to reduce capital flight. With the Pakistani rupee falling against the US dollar, cryptos can offer a safe, yet legal, store of value that deters capital outflows. Finally, on a more holistic level, Pakistan has a rare, albeit fleeting, chance to be at the forefront of the next technological revolution by adopting and regulating cryptocurrencies.
The last time we had this chance was during the Web2 boom and Pakistan missed the mark, while China and India took the lead and managed to produce 301 and 101 unicorns respectively. Unicorn being a startup whose valuation exceeds one billion dollars. Estonia, a country with less than a tenth of the population of Lahore, managed to produce two unicorns, as did Bangladesh. Pakistan hasn’t even come close, with Pakistani startups struggling to establish themselves on the global stage. Cryptocurrencies and blockchain offer a second chance; a chance to be part of Web3 and change the destiny of our technological frontier.
It is hoped that the powers that be in Pakistan will take the time to fully understand the revolution brought by blockchain and cryptocurrencies, and create the relevant legislation to enable Pakistan to embrace the change and use it to its advantage to economic growth and prosperity.
Jafer Ali Shariff is a financial services industry professional who lives and works in London and Paris.