From Elon Musk’s tweets about Dogecoin to NFTs owned by Snoop Dogg and Madonna, the global cryptocurrency boom and broader blockchain space are making headlines in most western countries. Ironically, therefore, the country with the third-highest crypto adoption (according to the Chainalysis 2021 Global Crypto Index) – Pakistan – has no regulations that would allow it to nurture and grow the field based on the existing adoption . . In fact, research by the Federation of Pakistan Chambers of Commerce and Industry shows that Pakistanis owned more than $20 billion worth of cryptocurrencies in 2020-2021; an amount that exceeds the entire foreign exchange reserve of the country.
The reality is simple. The Pakistani people clearly want to participate in the global crypto revolution and it is up to the government to dictate and control the conditions under which they must deal 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 this area. The Indian government has completely reversed its crypto ban and now has taxes on crypto income, creating a new revenue stream for the treasury. Western countries have also realized that cryptocurrencies are indispensable. For example, the UK has extensive tax legislation that governs how income from cryptos is subject to capital gains tax or income tax. Furthermore, El Salvador has made history by becoming the first country in the world to use cryptocurrency as legal tender, allowing people to buy their morning coffee or weekly groceries with bitcoin. Other countries in the region are also in various stages of legislation to monitor or regulate the various ways cryptocurrencies can be used.
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If Pakistan is to compete on the world stage, good regulation is paramount and the urgent need of the hour.
Firstly, regulation is needed to put the right KYC procedures in place so that the fear of money laundering, or worse, can be allayed by putting the right controls in place. Huge amounts of crypto assets are already being moved by Pakistanis, it cannot be overemphasized that regulation of KYC procedures is an absolute must.
Second, crypto regulation is necessary for the state to benefit from tax on crypto income. More and more people will trade crypto or somehow touch the crypto ecosystem and the treasury not benefiting from these gains seems like a huge missed opportunity, in a country where tax collection is otherwise a major challenge. Moreover, if we go a step further and allow Pakistan to allow favorable corporate taxation for cryptocurrencies, Pakistan could become a hub in the region and attract organizations that rely on blockchain or use cryptocurrencies, 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 fuel an increase in foreign remittances with many new blockchains, with negligible transaction costs and near-instant cross-border payments, which in turn could 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 provide a secure, yet legal, store of value that deters capital outflows. Finally, on a more holistic level, Pakistan has a rare, if fleeting, opportunity to be at the forefront of the next technological revolution by adopting and regulating cryptocurrencies.
The last time we had this opportunity 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 is a startup valued at over a billion dollars. Estonia, a country with less than a tenth of Lahore’s population, managed to produce two unicorns, as did Bangladesh. Pakistan doesn’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 fate of our technological frontier.
It is hoped that the powers that be in Pakistan will take the time to fully understand the revolution caused by blockchain and cryptocurrencies, and create the relevant legislation to enable Pakistan to embrace the change and use it to its advantage for economic growth and prosperity.
Jafer Ali Shariff is a financial services professional living and working in London and Paris.