On Thursday, the governor of the State Bank of Pakistan, Jameel Ahmad, announced plans to accelerate the development of a central bank digital currency (CBDC). A digital Pakistani rupee could be introduced by 2025.
Upcoming CBDC work
The State Bank of Pakistan has largely lagged behind in the global CBDC race. Other countries in the region, including India, have been working on pilot trials for some time now, with plans to test wholesale and retail use cases already underway.
In contrast, Pakistan has been dragging its feet. The central bank tabled laws to lay the groundwork for a future digital currency in 2019, but although it is now fast-tracking its implementation, it appears to be in an early research phase.
Local sources reported that Mr. Ahmad advised patience, as he does not want to rush the decision without first reviewing the work done by other central banks and assessing the risks to the Pakistani economy.
Possible CBDC motivations
Many developing countries are targeting their CBDC efforts toward financial inclusion to help unbanked individuals gain access to digital payments and other basic financial services. However, the State Bank of Pakistan could also be thinking about monetary sovereignty.
Given the astronomical inflation rate (38% as of May), crypto and other fiat currencies might become attractive to local businesses and individuals. The country is clamping down on the rise of cryptocurrencies, but in 2022 Pakistan ranked sixth in global adoption, one spot behind the United States.
Uncontrolled inflation and the knock on effects on exchange rates could mean other (more stable) fiat currencies could gain an advantage if things continue going south. Meanwhile, earlier this year, Pakistan reportedly bought Russian crude using the Chinese yuan for payment.
