As the global discourse and initiatives around central bank digital currencies (CBDCs) gain momentum, speculation arises about the State Bank of Pakistan (SBP) issuing a CBDC. This exploration delves into the progress and perspectives on a potential Pakistani CBDC, scrutinizing whether it holds promise for the country’s economic landscape. Despite the plausibility of an SBP-issued CBDC, its prospects remain uncertain.
Comparing CBDCs in Pakistan’s vicinity, countries like China and India are actively exploring digital currencies for diverse reasons, including improving domestic payment systems and fostering financial inclusion. While China’s digital yuan faces challenges in domestic adoption, it aims to leverage it for significant cross-border transactions to challenge the global dominance of the US dollar. Meanwhile, India’s “digital rupee” has gained traction, with extensive testing in both retail and wholesale markets.
In early 2022, former SBP governor Reza Baqir discussed Pakistan’s digital transition in monetary affairs, emphasizing digital transactions’ growing trend. However, the inclination towards private digital currencies does not necessarily imply support for a CBDC. The SBP Vision 2028, the central bank’s strategic plan, does not overtly express interest in a CBDC, focusing more on monitoring global developments. Concerns about risks related to unregulated digital currencies and cybersecurity are highlighted.
Despite a rise in digital transactions, there’s little evidence of widespread demand for an SBP-issued CBDC. The Karandaaz Financial Inclusion survey suggests that financial inclusion in Pakistan is still at 30%, indicating limited demand. Baqir’s view of CBDCs as “central bank liabilities in digital form” raises questions about the unique value proposition that an SBP-issued CBDC would bring, considering the challenges faced by the traditional rupee.
Reflecting on the socio-political character of money, the blog post raises questions about who gets to create digital rupees and the benefits of holding them, especially if digital cash doesn’t earn interest. The socio-political trust in the sovereign backing the CBDC becomes a critical factor.
In conclusion, the prospects for an SBP-issued CBDC in Pakistan remain ambiguous, influenced by global uncertainties and the country’s unique dynamics. The motivations behind such an initiative and its design will play a crucial role in determining its success and impact on Pakistan’s economic landscape.
