Recent movements of the Pakistan government to cultivate a cryptofraned environment clearly contradict the warnings of its central bank.
In 2018, the State Bank of Pakistan (SBP) issued a severe warning warning financial institutions against the high risks of virtual currencies. However, in a reversal of dramatic policies, the government has launched initiatives such as the Crypto Council of Pakistan, apparently anxious to capitalize on global digital tendencies without first addressing unresolved regulatory deficiencies.
Worldwide, the digital asset revolution is gaining a formidable impulse. There are now more than 560 million cryptographic users worldwide, and emerging markets are witnessing robust growth. It is projected that cryptographic sectors in some regions will grow at an annual rate composed of approximately 7.1 percent, with markets such as India that record retail commercial volumes of around $ 1.9 billion in the last quarter of 2024.
Nigeria reported that almost 32 percent of its population is actively involved with digital currencies, generating transaction volumes estimated at $ 400 million. In Brazil, the stables represent up to 90 % of all cryptography flows, highlighting how digital assets are becoming essential in the regions where traditional bank infrastructure is limited.
Pakistan’s incursion to cultivate crypto-friendly policies despite an aml/CFT regime deficient causes serious regulatory concerns about volatile digital currencies
However, the rapid hug of Pakistan’s digital currencies seems to be a jump before looking. Although Pakistan made commendable advances when addressing his action plan for the Financial Action Task Force (FATF), the progress that culminated in its elimination of the Fatf Gray list in October 2022, regulatory gaps and critical application are left.
This progress, although significant, has not resolved long-standing vulnerabilities in the anti-launching of money (AML) and anti-terrorist financing frames of the nation. Recent FATF monitoring reports indicate that Pakistan still faces challenges with certain recommendations, particularly in areas related to due diligence and the supervision of non -financial companies.
The 2018 SBP warning remains as relevant as ever. The report emphasized that virtual currencies, due to their very decentralized and opaque nature, are main ducts for money laundering and illicit finances. Worldwide, bets are high: estimates suggest that in 2024 illegal cryptographic transactions may have reached up to $ 40.9 billion, with approximately $ 10.8 billion linked to cyber crime. Such amazing figures underline the dangers inherent to hasty and little regulated cryptographic adoption.
Pakistan’s axis towards friendly policies with cryptographic seems to be driven by the desire to reflect the success stories of other emerging markets instead of a clear evaluation of their own regulatory preparation. The launch of the Pakistan Crypto Council in March 2025 is marketed as a means to modernize financial landscape and attract foreign investments.
However, this is little more than a political gambit, an attempt to show modernization and digital innovation by ignoring unresolved deficiencies in its AML/CFT regime.
This approach is particularly dangerous when one considers the high profile collapses that have spoiled the global cryptographic scene. The collapse of FTX in 2022, which erased thousands of millions in investors, is a marked reminder of volatility and systemic risks proposed by digital asset markets. Previous failures, such as Mount Gox debacle in 2014 and Fiasco Quadrigx in 2019, even more illustrate how inadequate regulatory supervision can precipitate catastrophic losses.
At the same time, the famous black market online of the silk route, which Bitcoin used to facilitate illicit drug trafficking before its closure in 2013, demonstrates how digital networks can be exploited by criminal networks when they are not controlled.
While some emerging markets have managed to integrate digital currencies into their economies through balanced regulatory frameworks and risk -based, the recent change of Pakistan’s policy seems to be reckless. By prioritizing cryptographic initiatives without completely consolidating their regulatory foundations, Pakistan runs the risk of exposing his financial system to the dangers in which his central bank warns against almost seven years ago.
The irony is palpable. Global markets such as India and Nigeria are reaping the benefits of digital finances by ensuring that regulatory reforms go hand in hand with technological adoption. India, for example, is cautiously exploring a digital currency backed by the state while considering restrictions in private cryptocurrencies, thus maintaining a balance between innovation and stability.
On the contrary, the abrupt brightness of Pakistan seems to prioritize the charm of modernity over the hard work of establishing a robust and enforceable frame, one that can safeguard against money laundering, terrorist financing and systemic risks highlighted by FATF.
It is essential to recognize that the elimination of Pakistan from the Fatf Gray list in October 2022 does not indicate its AML/CFT challenges. Fatf monitoring reports indicate that, although Pakistan has made significant improvements, certain key recommendations remain only partially addressed. The nation’s trip to full fulfillment is far from finishing, and any additional expansion to the space of digital assets without resolving these deficiencies could invite serious repercussions.
For Pakistan, the current pivot of cryptographic policy is a high -risk commitment. It is an open exhibition of an desire to join the global digital revolution, but runs the risk of undermining the integrity of its financial system through the creation of new vulnerabilities. Risks are not merely theoretical.
If the volatility of the cryptographic market triggered another high profile collapse similar to the FTX or exacerbe the criminal activity similar to the phenomenon of the Silk route, the consequences could be disastrous not only for investors but for the entire economy.
In conclusion, although the promise of digital currencies is real and the global market continues to expand, Pakistan must step cautiously. Government’s cryptographic initiatives, although aimed at modernization, are premature without first strengthening the Nation AML/CFT regime and guaranteeing a solid regulatory supervision.
The 2018 SBP report, with its raw warnings, should serve as a reminder that innovation cannot reach financial security expenses. Pakistan must complete their regulatory reforms and close the remaining gaps highlighted by FATF before it can take advantage of the potential of digital assets.
The writer is the former head of the emerging market investments of Citigroup and author of ‘The Gathering Storm’
Published in Dawn, The Business and Finance Weekly, March 31, 2025
