ISLAMABAD:
The central bank said on Wednesday that restrictions under the Foreign Exchange Regulation Act (FERA), including the maximum annual limit of $100,000, will apply to foreign transfers of digital currencies. The statement underscores challenges in introducing a new digital currency regime in Pakistan.
The State Bank of Pakistan (SBP) also said it is working on launching a new digital currency. It would be used for trading in digital assets. But this can happen only after the Pakistan Virtual Assets Regulatory Authority (PVARA) Bill is passed, the State Bank of Pakistan Act is amended, and a regulatory framework is put in place.
Appearing before the Senate Standing Committee on Finance, SBP Acting Deputy Governor Dr Inayat Hussain said FERA would be applicable to digital assets. He said the law’s limits will apply, including the maximum outbound transfer of $100,000 by an individual in a year.
The committee, headed by PPP Senator Saleem Mandviwalla, began clause-by-clause discussions on the proposed PVARA Bill. The government has already issued a PVARA Ordinance and is now seeking parliamentary approval to give permanent legal cover to the authority.
However, the Ministry of Law and Justice, which helped draft the Ordinance, underlined that there will be challenges in implementing FERA on digital assets.
“Some amendments will be needed in FERA, as it cannot be implemented on digital assets in its present form,” said Shehroz Bakhtiyar, legal consultant to the Law Division, while briefing the committee.
Legislators backed his view. “It is simply not possible for the SBP to monitor any outbound digital transaction due to the nature of these transactions,” said PML-N Senator Afnanullah Khan. He said Pakistanis have invested more than $21 billion in digital assets and that it is high time the government enacted a law to regularise trading.
Bakhtiyar said it would be binding on licensees to implement the $100,000 limit. But he agreed that enforcing the limit would be difficult in practice, given how these markets work.
PVARA provides the broader legal framework for the sector, said the acting deputy governor. He added that the detailed regulatory framework would be finalised later.
Both the government and the SBP have expressed concerns about the implications of the new regime for the economy and the country’s international commitments. The law ministry said these issues would be addressed through appropriate legislation.
Laws and regulations like FERA, the Financial Action Task Force (FATF) recommendations, and the Anti-Money Laundering Act would apply to digital assets to make the regime air-tight, Law Secretary Raja Naeem Akbar told the committee.
He said foreign firms dealing in digital currencies, such as Binance, would have to set up offices in Pakistan and FERA would be applicable to them too.
Akbar said the PVARA Bill had been discussed at the Pakistan Crypto Council. He rejected the impression that the bill was copied from anywhere.
Dr Hussain said the SBP would issue a digital currency that could be used to buy any digital asset. He said the value of the digital currency would be equal to the value of the rupee. A bank account holder would be able to deal with both currencies in the same account.
He said that once the digital currency is issued, the central bank will ask commercial banks about their needs for digital assets. Customers would have the option to receive rupees or digital rupees from their bank accounts, he added.
“The gold standard should be the central bank digital currency, and it should be under the control of the SBP,” said Senator Afnanullah Khan.
Bakhtiyar said the central bank digital currency would be regulated under the SBP Act. He said PVARA would not have any regulatory authority for managing the central bank digital currency.
On a proposal by PML-N Senator Anusha Rahman, the committee set the upper age limit of 55 years for appointment as chairperson of PVARA. The candidate must have at least five years’ experience in digital finance and technology. The committee also included one member of the National Assembly and one senator as members of the authority.
To a question, the acting deputy governor said restrictions on banks and dealers to deal in digital currencies would remain in place until the new legal framework is in place.
In the first PVARA meeting, the SBP blocked a move to immediately declare digital currencies legal. It cautioned that allowing transactions without a regulatory framework could create serious challenges.
The SBP’s 2018 instructions also declared dealings in cryptocurrencies illegal and required banks to report such transactions as suspicious to the Financial Monitoring Unit (FMU).
The circular stated that digital currencies such as Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond, or ICO tokens are not legal tender. It said they are neither issued nor guaranteed by the government.
The committee recommended placing PVARA under the administrative control of the finance ministry instead of the Cabinet Division to make it more effective.
Under the proposed law, digital service providers may offer nine services: advisory, broker-dealer, custody, exchange, lending and borrowing, virtual asset derivatives, asset management, transfer and settlement, and fiat-referenced token issuance.
The committee deferred further deliberations on the bill until its next meeting.