The State Bank of Pakistan (SBP) has expressed its interest in launching a central bank digital currency (CBDC) experiment, adopting a cautious approach to its development. SBP Governor Jameel Ahmad stated that the bank aims to accelerate CBDC development in the coming months to keep pace with global innovation. There are hints that a CBDC could be made available for public use by the end of 2025.
Despite this renewed interest in CBDCs, the central bank is keen on learning from the experiences of other central banks to avoid potential pitfalls. While Pakistan may lag behind in CBDC development, the banking regulator is committed to a slow-and-steady approach for its pilot program.
The details of the CBDC studies remain in the early research stage, and it’s uncertain whether the central bank will prioritize a retail or wholesale CBDC. Observers speculate that the SBP might divide its resources to explore both options, similar to its neighboring country, India.
Pakistan’s CBDC plans date back to 2019 when the SBP proposed a bill to the legislature, laying the foundation for a CBDC. At that time, the central bank aimed to introduce a digital version of its currency to mitigate the growth of digital currencies and the potential threat of dollarization in its economy.
However, Saleem Mandviwalla, Chair of the Senate Standing Committee on Finance and Revenue, believes that digital currencies and a CBDC can coexist within the financial system.
Given the SBP’s approach of learning from other countries’ experiences, India’s CBDC experiments are likely to have some influence on Pakistan’s decision-making process. India is actively developing retail and wholesale CBDCs and has ruled out the possibility of a blanket ban on virtual currencies.
Like India, Pakistani authorities are likely to explore the use of CBDCs for cross-border transactions to enhance the state of remittances. The SBP plans to execute its pilot program in stages, involving Pakistani commercial banks and a select group of participants before expanding to more cities.
The Trend of CBDC Development
Pakistan’s decision to venture into CBDC experiments aligns with numerous other countries exploring this field. Research indicates that over 100 countries have initiated CBDC studies, with 24 of them planning to launch their offerings before the end of the decade.
While developing nations lead in CBDC research, experts suggest that Russia and China remain at the forefront and could potentially release their CBDCs as early as 2024. Developing countries are motivated by the desire to improve financial inclusion and bridge the economic gap between themselves and developed economies.