The Pakistani government's approach to cryptocurrency has evolved from outright skepticism and bans toward cautious consideration of regulation, influenced by both domestic and international factors. Here's a structured overview of their stance and regulatory efforts:

### **Government Stance on Cryptocurrency**

1. **Initial Skepticism and Bans**:

- In 2018, the State Bank of Pakistan (SBP) prohibited banks and financial institutions from processing cryptocurrency transactions, citing risks like money laundering, terrorism financing, and volatility.

- Crypto was not recognized as legal tender, and public warnings were issued about its risks.

2. **Shift Toward Regulation**:

- **FATF Pressure**: Pakistan's placement on the FATF "grey list" (2018–2022) prompted efforts to regulate virtual assets to meet international anti-money laundering (AML) and counter-terrorism financing (CFT) standards.

- **Committee Formation**: In 2021, a federal committee (including SBP, SECP, and IT Ministry representatives) was tasked with proposing a regulatory framework. Recommendations included banning decentralized cryptocurrencies while exploring a central bank digital currency (CBDC).

3. **Judicial Influence**:

- A 2020 Supreme Court directive urged the government to regulate crypto, leading to renewed discussions on formalizing policies.

### **Regulatory Developments**

1. **Exploration of CBDC**:

- The SBP is researching a digital rupee to modernize payments and enhance financial inclusion, aligning with global trends in CBDCs.

2. **Taxation**:

- The 2022–2023 budget introduced a 15–20% tax on crypto income for filers (30% for non-filers), signaling recognition of crypto's economic presence.

3. **AML/CFT Measures**:

- Draft regulations (2023) propose licensing for crypto service providers, KYC/AML compliance, and transaction monitoring to align with FATF guidelines.

4. **Public Engagement**:

- Despite bans, peer-to-peer trading persists, driven by tech-savvy users and remittance potential. The government acknowledges the need to balance innovation with control.

### **Challenges and Outlook**

- **Economic Context**: High inflation and a weak rupee make crypto attractive for hedging and remittances but raise concerns about capital flight.

- **Interagency Dynamics**: The SECP (open to crypto as an asset) and SBP (risk-averse) must reconcile differing priorities.

- **Slow Implementation**: Bureaucratic delays and evolving global standards hinder swift regulation.

### **Conclusion**

Pakistan is transitioning from prohibition to regulated acceptance of cryptocurrencies, driven by FATF compliance, judicial pressure, and economic realities. While risks remain a focus, the government aims to harness crypto's potential through taxation, AML frameworks, and a potential CBDC. Progress is incremental, with full regulatory clarity yet to emerge.