Pakistan’s central bank confirms CBDC development, seeks to catch up with industry pioneers

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The State Bank of Pakistan (SBP) has revealed its desire to begin a central bank digital currency (CBDC) experiment after adopting a nonchalant development approach.

The Pakistani banking regulator is keen on accelerating CBDC development in the coming months to keep up with the pace of global innovation, according to SBP Governor Jameel Ahmad. In a meeting with the Senate Standing Committee on Finance and Revenue, Ahmad hinted that a CBDC could be rolled out for public use before the end of 2025.

Despite the renewed interest in CBDCs, the central bank executive stated that the country will be learning from the experiments of other central banks to avoid certain pitfalls. Ahmad noted that although Pakistan lags in CBDCs, the banking regulator will still adopt a slow-and-steady approach toward its pilot.

The SBP Governor revealed that the CBDC studies are at an early research stage but failed to specify whether the central bank will be throwing its weight behind a retail or wholesale CBDC. Pundits believe that the SBP will divide its resources between retail and wholesale CBDC developments, in line with the pattern of its next-door neighbor India.

Pakistan’s CBDC plans trace back to 2019 when the SBP proposed a bill to the legislature, laying the framework for a CBDC. At that time, the central bank was keen on rolling out a digital iteration of its currency to stifle the growth of digital currencies over the looming threats of the “dollarization” of its economy.

However, Saleem Mandviwalla, Chair of the Senate Standing Committee on Finance and Revenue, suggested that digital currencies and a CBDC will be able to thrive in the same financial system.

Given the SBP’s stance on leaning on the studies of other countries, it is expected that India’s CBDC experiments may have a measure of influence on Pakistan. India is proceeding with developing retail and wholesale CBDCs and has ruled out the possibility of a blanket ban on virtual currencies.

Like India, experts believe that Pakistani authorities will be keen on exploring the use of CBDCs for cross-border transactions to improve the state of remittances. Furthermore, the SBP’s incoming pilot is expected to be carried out in stages, roping in the Pakistani commercial banks and a small group of participants before expanding to more cities.

The rapid development of CBDCs

Pakistan’s decision to proceed with CBDC experiments adds to many countries exploring the offering. New research indicates that well over 100 countries have begun CBDC studies, with 24 nations set to launch their offerings before the end of the decade.

While developing nations have taken the lead in CBDC research, experts posit that Russia and China are still in the pole position to release their CBDCs as early as 2024. Developing countries are motivated by a need to improve financial inclusion and close the economic gap between them and developed economies.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Blockchain provides perfect foundation for CBDC