KARACHI: The State Bank of Pakistan is collaborating with central bank digital currency (CBDC) solution providers at the proof-of-concept (POC) stage, an exploratory phase, seeking to evaluate the viability of a digital currency, while addressing the related challenges and opportunities in the country’s financial system.
The CBDC is a digital form of fiat currency that is issued by the central bank for the public to make payments. It can be stored on mobile wallets, cards or other digital devices. CBDCs are treated similarly to cash, albeit in digital form, allowing consumers and businesses to pay and settle their liabilities in digital form without accessing their bank accounts.
“The SBP has been reviewing global developments in CBDCs with a focus on the assessment and evaluation of the underlying technology, capacity building and HR needs, and potential use cases,” the central bank said in written responses to questions sent by The News.
The bank is also exploring opportunities and challenges in our existing systems as part of this feasibility. The objective is to remain aligned with global trends while safeguarding the stability of the domestic monetary and financial system, it added.
According to the SBP, globally, most central banks are undertaking the feasibility of CBDC through research, POCs and pilot projects. To date, only a few countries have officially launched CBDCs, namely Nigeria (e-Naira), the Bahamas (Sand Dollar) and Jamaica (Jam-Dex).
“As part of its exploratory initiative, the central bank is engaging with selected CBDC solution providers at the proof-of-concept (POC) stage to better understand the underlying technologies, operational models, and their solution offerings,” it said. “These engagements are being pursued, in line with international best practices and the approach adopted by other central banks.”
The POC phase involves testing both technical and policy assumptions to assess whether a specific CBDC concept is technically feasible. This phase includes designing and testing the infrastructure, exploring potential use cases, and examining interoperability with the central bank’s existing system. If the POC is successful, the central bank proceeds to a pilot phase, which is a limited, live test involving real users, such as a select group of banks and consumers, and real transactions in a controlled environment.
The SBP is actively engaging with virtual assets under the newly enacted Virtual Assets Ordinance and is working alongside the Pakistan Virtual Assets Regulatory Authority (PVARA). Moreover, it explores a digital money aimed at improving financial inclusion, payment efficiency, and the overall digital economy.
During a recent appearance before the Senate Standing Committee on Finance, SBP Acting Deputy Governor Dr Inayat Hussain said that the Foreign Exchange Regulation Act (FERA) would apply to digital assets. He noted that the law’s limitations, including a maximum annual outbound transfer of $100,000 per individual, would remain in effect. Hussain mentioned that the SBP plans to issue a digital currency that can be used to purchase any digital asset, with its value pegged to the value of the Pakistani rupee. Bank account holders will be able to manage both currencies within the same account. He added that once the digital currency is issued, the central bank will consult with commercial banks regarding their needs for digital assets.
Banking and financial expert Ibrahim Amin highlighted that the potential introduction of a CBDC would be a significant step towards achieving the national goal of maximising financial inclusion and supporting the advancement of the digital economy in the country.
However, there are potential risks related to cybersecurity and privacy that the central bank, commercial banks, and the public must address through increased awareness and enhanced financial and technical literacy.
“The digital currency may have challenging impacts on commercial banks. For instance, if individuals hold large CBDC balances directly with the central bank, it could reduce deposits in commercial banks, affecting their ability to lend,” Amin said.
“Also, Pakistan’s digital infrastructure faces challenges like connectivity gaps, low digital literacy, and low cybersecurity standards that may be negative aspects of the digital currency,” he added.
“Strong laws and coordination with global partners (such as FATF requirements and cross-border rules) are essential. Without this, a CBDC could create regulatory gaps,” Amin said. In May, the SBP clarified that while virtual assets are not illegal, it advised financial institutions to refrain from engaging with them until a formal licensing framework is implemented. However, in July, the SBP governor said that Pakistan was preparing to launch a pilot programme for a digital currency and is finalisng legislation to regulate virtual assets.
This month, the PVARA has sought applications from international cryptocurrency service providers for licenses to operate within the country. Experts estimate that Pakistan’s cryptocurrency market already accommodates over 40 million users, with an annual trading volume nearing $300 billion, rendering it one of the largest unregulated marketplaces globally.
In March, the government formed the Pakistan Crypto Council to regulate and incorporate blockchain technology and digital assets into the national financial system.