Legal Framework for Cryptocurrency in Pakistan: Economic Potential vs. Regulatory Challenges

Abstract

The transmogrification of cryptocurrencies has impacted global financial systems in the past two decades. It has created vast economic opportunities, and it also comes with vast regulatory complexities. Currently, cryptocurrency remains a subject of debate in Pakistan because there are no standard laws governing its use, which could provide robust support for its role as an economic enabler. In this regard, this paper first discusses the legal framework encompassing cryptocurrency in Pakistan. The primary goal of this research is to examine the potential of cryptocurrencies to grow and develop the Pakistani economy through the areas of financial inclusion, foreign investment attraction, and the development of a digital economy. The paper also addresses key challenges surrounding cryptocurrency in Pakistan, including the high probability of money laundering, terrorist financing, tax evasion, and the unpredictability of the price of cryptocurrencies; cross-border challenges, including the enforcement of rules in different jurisdictions, and the possibility of illicit activities performed through cryptocurrency. A doctrinal methodology was employed within this research. It involved analysing statutory materials, including statutes, journals, policy documents, and international best practice, to identify if integration of cryptocurrencies into the formal financial system of Pakistan could be feasible. Lastly, the paper suggests some recommendations that aim at enhancing the future of cryptocurrency and protecting the emerging digital economy from cyber threats.