Pakistan Proposes Historic Shift to Legalize Digital Currencies, Reform Central Bank Leadership

Pakistan’s federal government has proposed sweeping amendments to the State Bank of Pakistan (SBP) Act that would legalize digital currencies and ease restrictions on dual nationals holding top central bank positions. The move marks a dramatic reversal from the country’s previously cautious stance on cryptocurrencies and digital assets.

The proposed changes, vetted by the Ministry of Law and now awaiting federal cabinet approval, would enable the SBP to issue and manage currency in both physical and digital forms. This represents the first-ever inclusion of digital currency provisions in the SBP Act, potentially paving the way for cryptocurrencies like Bitcoin to be recognized as legal tender.

“We may need to bring a few things back to Parliament, particularly regarding nationality,” Finance Minister Muhammad Aurangzeb stated during a recent Senate Standing Committee meeting, highlighting the government’s push for reform. The amendments would notably remove restrictions on dual nationals serving in key positions, including governor and deputy governor roles—a limitation that was implemented in January 2022.

The reforms also establish a regulatory framework for digital currencies, with the SBP gaining authority to:

• Issue and oversee central bank digital currency (CBDC)
• Establish a subsidiary for developing and operating digital payment systems
• Impose penalties equal to twice the value of any unauthorized digital currency issuance

This regulatory shift comes as a surprising reversal from Pakistan’s historical position. As recently as 2023, the country’s former Minister of State for Finance and Revenue had declared that cryptocurrency would “never be legalized” in Pakistan. The SBP had previously issued warnings about virtual currencies, citing concerns about anonymity and potential illegal activities.

The timing coincides with broader economic reforms, as the Monetary Policy Committee recently announced a 2.5% interest rate cut and projected GDP growth of 2.5-3.5% for the fiscal year 2025. These changes, coupled with the proposed digital currency framework, signal Pakistan’s growing embrace of financial innovation and modernization.

The amendments would also expand the SBP board’s governance powers, enhancing its authority over financial reporting and streamlining administrative processes. With two deputy governor positions potentially becoming vacant by November 8, the government faces pressure to implement these changes swiftly to maintain leadership continuity at the central bank.