From Cash to Code: Examining the Legal Framework for the Future of Digital Currency in Pakistan
DOI:
https://doi.org/10.64060/ICPP.07Keywords:
Digital Currency, CBDC, Legal Framework, Pakistan, Financial Inclusion, FATF ComplianceAbstract
Pakistan’s cash-heavy economy is rapidly moving toward digital finance, driven by fintech growth and the State Bank of Pakistan’s Raast instant payment system, making it crucial to assess whether existing laws can support a future Digital Rupee or central bank digital currency (CBDC). This study evaluates how well Pakistan’s current monetary and financial framework can accommodate CBDC, identifies regulatory and institutional gaps, and proposes reforms to protect monetary sovereignty, enhance financial inclusion, and maintain coherence across the financial system. This paper treats the shift “from physical cash to digital code” as a legal paradigm change that demands an updated understanding of legal tender, payments, and state-backed money in the digital age. Using doctrinal legal analysis, comparative case studies, and policy review, it examines whether Pakistan’s existing rules can safely support CBDC design, issuance, and use. The study traces Pakistan’s move from a predominantly cash-based economy to expanding digital rails, focusing on Raast and major private platforms such as Easypaisa, JazzCash, and licensed electronic money institutions (EMIs). It analyzes post-COVID-19 uptake of digital payments alongside persistent barriers such as low digital literacy and trust, especially among underserved groups. The paper also benchmarks Pakistan’s emerging CBDC posture against international experiences, including China’s e-CNY, the EU’s Digital Euro, and Nigeria’s eNaira, to highlight lessons on legal tender status, architecture, and inclusion. It then critically reviews key statutes i.e., the State Bank of Pakistan Act 1956, the Payment Systems and Electronic Funds Transfer Act 2007, the Foreign Exchange Regulation Act 1947, and the Prevention of Electronic Crimes Act 2016, showing that despite strong SBP authority, definitional gaps and overlapping mandates create legal uncertainty over digital assets, data protection, consumer redress, and cybersecurity. This study recommends targeted amendments to foundational monetary and payments legislation and the adoption of a dedicated “Digital Currency Act” that clearly defines the legal tender status of a Digital Rupee, allocates governance responsibilities, and embeds safeguards for privacy, cybersecurity, and user rights. It further argues that aligning Pakistan’s framework with FATF, IMF, and BIS standards will allow the country to harness its growing digital infrastructure to foster inclusion, safeguard rights, and position itself as a regional leader in secure and equitable digital finance.
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