Pakistan's crypto gamble

State must first build constitutional, legal & regulatory foundations for crypto initiatives & partnerships

LAHORE:

Pakistan's renewed embrace of cryptocurrency is being presented as technological progress. Official statements describe blockchain, tokenisation and virtual assets as instruments capable of attracting investment, modernising financial services and positioning Pakistan within the emerging digital economy. Few would dispute that financial technology is reshaping global commerce or that Pakistan should remain isolated from it.

The real question is not whether Pakistan should engage with digital assets. It is whether the State has first built the constitutional, legal and regulatory foundations required for sovereign-level crypto initiatives and partnerships with private foreign entities. This distinction is fundamental. Pakistan's governments have repeatedly adopted ambitious reforms before constructing the institutions needed to regulate them. Energy, public procurement, taxation, privatisation and financial regulation all demonstrate how institutional weaknesses can eventually overwhelm sound policy objectives.

Cryptocurrency presents an even larger challenge because it combines finance, technology, cross-border transactions, cybersecurity and national security within a single ecosystem. Reports of Pakistan's engagement with foreign cryptocurrency ventures, including entities associated with the family business interests of US President Donald Trump, have understandably attracted international attention. The issue is not whether these associations are lawful.

No evidence presently suggests that Pakistan has acted unlawfully or that any foreign partner has committed misconduct in relation to Pakistan. The concern is whether adequate institutional safeguards existed before such strategic relationships were pursued. Governments routinely scrutinise transactions involving politically exposed persons, sovereign wealth, strategic infrastructure and financial institutions. Such scrutiny is not hostility towards investment. It is an essential part of good governance. Pakistan must apply the same standards to itself.

The country's enthusiasm for digital assets also sits uneasily beside its recent regulatory history. Pakistan spent nearly two decades strengthening its anti-money laundering and counter-terrorism financing framework. Meeting international monitoring requirements demanded extensive legislative amendments, regulatory restructuring, enhanced financial surveillance and greater cooperation among enforcement agencies.

Cryptocurrency adds a new layer of complexity. Blockchain technology is neutral. The same distributed ledger that can improve payment efficiency may facilitate illicit transfers where regulation and enforcement remain weak. The challenge lies not in the technology itself, but in governance. International investigations continue to show the difficulties regulators face in supervising virtual-asset markets. Cross-border ownership structures, decentralised exchanges, jurisdictional arbitrage, sanctions-evasion techniques and anonymous wallets have tested even sophisticated regulatory systems. Such findings should not be treated as accusations against every crypto enterprise. They are warnings that digital finance requires exceptional institutional capacity.

Pakistan must ask a simple but uncomfortable question: have its institutions developed at the same pace as its policy ambitions? Parliament still lacks a comprehensive legislative framework governing virtual assets. Issues concerning licensing, consumer protection, taxation, insolvency, cyber liability, anti-money laundering obligations, cross-border enforcement and regulatory jurisdiction remain only partly addressed. The State Bank of Pakistan, Securities and Exchange Commission of Pakistan, tax authorities, investigative agencies and newly created regulatory bodies possess overlapping responsibilities, while their coordination mechanisms remain largely untested. The sequencing is therefore troubling. A regulator created after political enthusiasm has already taken hold may be forced to legitimise decisions rather than independently evaluate them.

A statutory framework enacted after partnerships are announced can become an instrument of ratification instead of scrutiny. Sound governance requires the law, institutional mandates and risk controls to precede commercial commitments, not follow them. This uncertainty matters because cryptocurrency is not merely another financial product. It affects monetary policy, capital controls, foreign-exchange regulation, taxation, banking supervision and national security simultaneously. Decisions taken today may shape Pakistan's financial architecture for decades. Monetary sovereignty is particularly important. Privately issued stablecoins increasingly perform functions traditionally associated with sovereign currencies. If cross-border trade, remittances or domestic settlements migrate towards private digital currencies, central banks face new challenges in implementing monetary policy, monitoring capital movements and protecting financial stability. These questions require public debate before commitments become difficult to reverse.

The fiscal implications are equally serious. Pakistan's tax system already struggles to capture digital commerce, offshore transactions and emerging financial products. Virtual assets create further questions involving capital gains, business income, indirect taxation, reporting obligations and cross-border information exchange. Without legislative clarity, taxpayers and administrators will face uncertainty, unequal treatment and avoidable litigation.

Transparency is indispensable. Whenever governments enter strategic partnerships involving emerging technologies, public confidence depends upon disclosure rather than secrecy. Citizens are entitled to know the legal framework governing such arrangements, the safeguards incorporated into them and the due diligence undertaken before approval. This obligation becomes stronger where foreign private entities possess substantial political visibility. Democratic accountability does not presume wrongdoing. It recognises that public confidence grows when governments disclose how significant decisions were made, who evaluated the risks and which public authority accepted responsibility. Pakistan's digital future cannot rest on confidential understandings inaccessible to parliament, independent experts and the public. Straightforward answers are required. Has parliament debated a national cryptocurrency policy? Has the cabinet approved the strategic framework?

Have the State Bank and SECP independently assessed the implications for monetary policy and financial stability? Has a comprehensive anti-money laundering, counter-terrorism financing and sanctions-risk assessment been conducted? Has the Federal Board of Revenue developed a coherent taxation framework? Have the Ministry of Law and other relevant institutions examined the constitutional implications for financial sovereignty and regulatory jurisdiction? These questions are neither political nor ideological. They represent the minimum standards expected in a constitutional democracy.

The writer is the Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences, member Advisory Board and Visiting Senior Fellow of PIDE