SBP ponders digital currency launch

Financial exclusion, high use of cash remain major problems, says SBP chief

KARACHI:

Pakistan’s central bank, on Wednesday, said it had advanced its studies and gathered enough momentum to introduce its own state-of-the-art, safe and secure digital currency deployed via blockchain technology to help reduce reliance on physical currency.

While addressing the Pakistan Fintech Forum 2022 on Wednesday, State Bank of Pakistan (SBP) Governor, Jameel Ahmad said, “The central bank is researching central bank digital currencies (CBDCs) and is doing a ‘cost versus benefits’ analysis of issuing its own CBDC to harness the potential of distributed ledger technologies (DLT).”

DLT is designed using blockchain technology which allows for the de-centralisation of data to make products secure against cyber thefts, it was learnt.

While giving a talk on ‘Breaking Barriers through Digital Financial Inclusion’, the SBP governor said, “We have examined almost all jurisdictions, that are either experimenting or have issued CBDCs. We will, however, tread this path very carefully especially with regard to design choices. We will also use case analysis.”

“Earlier this year, SBP issued a licensing and regulatory framework for the establishment of digital banks in Pakistan,” he noted.

In March 2022, former governor Reza Baqir said, “The instant payment system – Raast – had given SBP the confidence to consider introducing its own digital currency. Our faster payment system (Raast) puts us in a position where we believe that we can seriously consider the pros and cons of central bank digital currency and appropriate design features for Pakistan.”

“To enhance financial inclusion in the country, technological innovation and adoption is the way forward,” emphasised SBP governor Ahmad.

“Financial inclusion helps provide banking services to people outside the banking ecosystem and assists in channelling trillions of rupees into the banking system. It is also a crucial step that can help cut the size of the informal, parallel economy,” he remarked.

Explaining that financial exclusion and the high usage of cash remains a major problem in Pakistan, Ahmad said, “In fact, even people who have bank accounts often find it difficult to access formal financial services, relating to credit and saving, from their respective service providers. As a result, people, and many businesses, rely on cash for day-to-day transactions and resort to informal savings and risk management methods, including borrowing from informal lenders at a very high rate to meet their financial needs.”

“Next year, SBP is set to launch the quick response (QR Code) based person-to-merchant (P2M) or request-to-pay functionality. This will enable merchants and small businesses to receive instant payments from their customers.”

“I believe that Raast will provide some key building blocks to Pakistan’s payments industry. SBP will continue to work with all relevant stakeholders to promote the introduction and use of innovative payment methods to promote digital payment acceptance in a cost-effective and efficient manner,” said the SBP governor.

The SBP has already deployed the functionality of bulk payments on Raast, and person-to-person (P2P) customer transfers have already been launched.

“Today, on average, Raast processes around 200,000 to 300,000 P2P transactions, valued at around Rs5 billion per day. It also offers a number of features to support the growing fintech ecosystem,” he highlighted.

“In addition, the central bank is also working with stakeholders to introduce open banking in Pakistan. This will allow third-parties, to ask banking customers for their consent, to use selected data to offer financial products based on their individual requirements,” explained Ahmad.

“We are working on an open banking initiative under which banks, with the consent of their customers, will be able to share selected data with other banks or FinTechs to build and offer better customer-centric products,” he added.

Pakistan Fintech Network (PFN) Chairman, Syed Nadeem Hussain noted, “This is the era in which almost every institution will gravitate towards Fintech. We can take the examples of Facebook, TikTok, FoodPanda or Careem, all of which now have their own wallets and can act as fintechs.”

The Pakistan Stock Exchange (PSX) CEO, Farrukh Khan underlined that “Fintechs are at the forefront of the economic activities in big stock exchange markets. The situation in Pakistan is also changing and we need to capitalise on these emerging opportunities.”

Published in The Express Tribune, November 24^th, 2022.

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