Business 9 April 2018

Gerald Fenech

‘Worried’ State Bank of Pakistan warns against shady crypto dealings

As the cryptocurrency world continues to negotiate bad news and problems with scams and phishing, the latest revelation that the State Bank of Pakistan (SBP) had reportedly banned the use of cryptocurrencies has turned out to be another piece of fake news. In its statement, the SBP made no mention that cryptocurrencies are banned in the country, but cautioned its customers against dealing with digital currencies, particularly shady initial coin offerings (ICOs).

The first clarification made by the bank indicated that it did not recognize crypto currencies as legal tender:“[Digital currencies] are neither recognized as a Legal Tender nor has SBP authorized or licensed any individual or entity for the issuance, sale, purchase, exchange or investment in any such Virtual Currencies/Coins/Tokens in Pakistan.”

The SBP also advised financial institutions such as banks, payment system operators and payment service providers not to allow their account holders to carry out transactions in digital currencies or to participate in ICOs.

The document also warned potential investors about the perils of fraud and scams, especially with Ponzi schemes currently prevalent in the cryptocurrency and ICO industries. It recommended that persons should steer clear of digital currencies to avoid severe financial losses and the eventual implications. The statement, however, was unclear on what those legal implications would be.

The State Bank of Pakistan confirmed its wariness over the “ambiguous nature” of digital currencies, which it said don’t offer any sort of legal protection or recourse if losses were eventually incurred. The bank also cited the extreme price volatility of such currencies, which were inherently based on speculation which is damaging to the market, as well as the highly probable incidence of failures and closures of digital currencies emanating from ICOs and the high probability of hacking digital wallets and the recent hacks of cryptocurrency exchanges, where hundreds of millions of dollars’ worth of digital currencies have disappeared.

Despite it wariness of cryptocurrencies, SBP has not stated explicitly that the use of digital currencies is illegal in the country. According to the statement, cryptocurrencies are not recognized as legal tender and that users should be extremely cautious before venturing to invest in them. However, the SBP notes that transfer of digital currencies outside Pakistan remains illegal and that could have implications on those who want to transfer their profits or assets to more friendly territory.

This announcement comes just after the Reserve Bank of India released a similar statement where it stated that it would no longer allow transactions in digital currencies. In fact, it expressly stated that the RBI would be halting any transactions with other entities dealing in Virtual Currencies.

Although India appears to be positive on blockchain technology, it appears to be clamping down on the use of cryptocurrencies which are viewed as dangerously volatile and susceptible to scams and other fraudulent operations.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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