The State Bank of Pakistan and the federal government have decided to ban all cryptocurrencies

The State Bank of Pakistan and the federal government have decided to ban the use of all cryptocurrencies, according to a report submitted to the Sindh High Court (SHC) on Wednesday.

The Sindh High Court (SHC) in Pakistan has been hearing cases regarding digital currencies. Earlier, the SHC asked the federal government to regulate cryptocurrencies within three months. The court directed the government to set up a committee headed by the federal finance minister to determine the legal status of cryptocurrencies.

The status of cryptocurrencies in Pakistan has been in limbo due to the lack of laws and rules to regulate the use of these digital currencies in trade. The court has directed the authorities to come up with a report on the use of cryptocurrencies. The report was submitted to the Sindh High Court on Wednesday. The report states that cryptocurrencies are illegal and cannot be used for transactions. The report lists at least 11 countries, including Saudi Arabia, that have banned cryptocurrencies. The report also mentioned the recent FIA investigation into cryptocurrency exchanges such as Binance and OctaFx and the risks these exchanges pose to investors.

The Sindh High Court has ordered that the report be sent to the Ministry of Finance and the Ministry of Law to make a final decision on the legal status of cryptocurrencies. The Ministry of Law and the Ministry of Finance will determine whether the ban on cryptocurrencies is within the ambit of the Constitution. This will also lay out a legal framework.

In addition, the central bank took a clear stance on cryptocurrencies for the first time and urged the SHC to not only ban cryptocurrencies but also impose penalties on cryptocurrency exchanges. Seema Kamil, deputy governor of the State Bank of Pakistan, submitted a 38-page report recommending that cryptocurrencies be declared illegal. The report stated that cryptocurrencies are virtual businesses that can be used to finance terrorist acts and launder money.

In the months before making its final decision, the court said the Federal Investigation Agency (FIA) and other agencies will continue to play by their rules.

Petitioner Waqar Zaka pleaded with the court to declare cryptocurrencies legal because a large number of Pakistanis are interested in them. Nasir Hayat Magoon, chairman of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), previously said that Pakistani citizens own $20 billion in crypto assets. In October last year, a research report published by Chainalysis showed that Pakistan had experienced a huge growth in cryptocurrency adoption in the previous year. The 2021 Chainalysis Global Cryptocurrency Adoption Index ranked Pakistan's index score third after Vietnam and India.

However, last December, a large number of investors lost Rs 1 billion. Due to a large number of complaints about the ongoing scam, the Federal Investigation Agency (FIA) of Pakistan issued an official notice to the cryptocurrency exchange Binance to find out the exchange’s links with a “fraudulent online investment mobile application.” The scam involved misleading investors to send funds from Binance wallets to unknown third-party wallets.