SBP Associates Digital Assets with Forex Regulations

The State Bank of Pakistan (SBP) confirmed on Wednesday that the Foreign Exchange Regulation Act (FERA), including the $100,000 annual limit for foreign transfers, will apply to digital currencies. The announcement highlights the challenges of introducing a formal digital currency framework in Pakistan.

New Digital Currency Initiative

SBP is working on launching a central bank digital currency (CBDC) for trading in digital assets. However, this initiative requires the approval of the Pakistan Virtual Assets Regulatory Authority (PVARA) Bill, amendments to the SBP Act, and the establishment of a robust regulatory framework.

Senate Committee Reviews PVARA Bill

During a session of the Senate Standing Committee on Finance, chaired by PPP Senator Saleem Mandviwalla, SBP Acting Deputy Governor Dr. Inayat Hussain emphasized that FERA rules, including the $100,000 outbound transfer cap, will govern digital assets. The committee is reviewing the PVARA Bill clause by clause, which is intended to provide permanent legal cover to the previously issued PVARA Ordinance.

Challenges in Implementation

Legal consultant Shehroz Bakhtiyar highlighted that FERA in its current form cannot be fully applied to digital assets, requiring amendments. Legislators agreed that monitoring cross-border digital transactions is complex, given the $21 billion invested by Pakistanis in cryptocurrencies.

Regulatory and Legal Framework

The SBP has stated that the detailed regulatory framework under PVARA will be finalized later. Laws including FERA, Financial Action Task Force (FATF) recommendations, and the Anti-Money Laundering Act will govern digital assets. Foreign crypto firms like Binance must establish local offices to comply with FERA.

Central Bank Digital Currency Details

Dr. Hussain explained that the upcoming digital rupee will be pegged 1:1 to the Pakistani rupee and can be used alongside traditional currency in bank accounts. The SBP will coordinate with commercial banks to assess demand for digital assets once the currency is issued. PVARA will not regulate the central bank digital currency, which will fall under SBP authority.

Committee Recommendations

The committee set the maximum age for PVARA chairperson at 55 years, requiring at least five years of experience in digital finance and technology. One National Assembly member and one senator will be included as authority members. The committee also recommended placing PVARA under the finance ministry for better effectiveness.

Current Restrictions and Legal Position

Until the regulatory framework is in place, banks and dealers will continue facing restrictions on digital currency transactions. SBP’s 2018 circular declared digital currencies like Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond, and ICO tokens as non-legal tender and instructed banks to report transactions to the Financial Monitoring Unit (FMU).

Services under PVARA

The proposed law allows digital service providers to offer nine services: advisory, broker-dealer, custody, exchange, lending and borrowing, virtual asset derivatives, asset management, transfer and settlement, and fiat-referenced token issuance.

Next Steps

Further discussions on the PVARA Bill have been deferred to the next committee meeting, as stakeholders continue refining the framework to regulate Pakistan’s growing digital asset market.