By Dr Jamil Khan

Traditionally, banking industry has been very slow in adopting changes and embracing technology in its routine operations. However, the pandemic shows that when necessity arrives decades of time needed is generally squeezed into months. Using the internet banking for touchless transactions by the consumers and the businesses alike was remarkably swift as it was embraced by all the stakeholders in no time.

Nevertheless, even before the pandemic, the banking industry was already on the path to its transformation using the preliminary IoT through the ATMs and digital payments clearing house. But during the pandemic, technology adaptation has unleashed cost efficiency, paperwork reductions, and the speed of decisions making. These events are pushing countries to accelerate their digital transformation for adopting the digital currencies as the choice of unit and transactions medium at an unprecedented pace.

The digital revolution is already here and is roaring at its full speed through the ecommerce, telemedicine, zoom conferencing, virtual classes, ride sharing, payment systems, bullet trains, space travel, to name a few! Thus, if the digital revolution is not embraced at its minimum requirements of replacing the existing paper notes and coins (Fiat Currency) with the Digital Currency (DC) in the economy, it will be too late to catch up with rest of the world!

However, in order to benefit from the digital revolution, Pakistan needs to make structural changes in its banking system and roll out new infrastructure for its operations. Not only will this require legislative support, but also new regime of paradigms by the central bank (SBP). As part of the regime, SBP has to roll out its new signposts for governance, monitoring, auditing, and stress-tests thresholds for its banking industry. Without the fundamental and structural changes in its operations with modern era governance and full transparency, other changes, and statements by the OLD school of thoughts SBL’s leadership will be meaningless, and waste of time and resources.

Even though SBP’s Governor Dr Reza Baqir has stated in April 2019 that Pakistan is looking into the digital currency introduction by 2025, coinciding with its target of 2030 to become fully digital. By this roadmap, Pakistan will take 6 long years to introduce its digital currency (e-Rs) in today’s profoundly digitized world that is moving at the speed of light, and many countries (small and big) have already established their leads in the arena of the digital currencies. This timeline shows that Pakistan is not very serious and is still moving at the “snail’s rate”. As a result of it, Pakistan will be left far behind in the digital transformation of its economy, banking, and the financial institutions.

Since Dr Baqir did not identify any details about the technology type, infrastructure, and the major stake-holders in his statement, most likely it will take much longer than the announced timings. Currently, Pakistan’s economy is cash heavy. This creates a fertile ground for money laundering (as cited by FATF), widespread corruptions, “fake currency” circulation, tax evasions, bank robberies, etc.

In general, digital currency is similar to the current “Fiat” currency as it has certain value and is an accounting unit. Like the “Fiat” currency, the digital currency is also backed by the governments (central banks) and is based on the private blockchain technology and as such, consumers are fully protected. On the other hand, the most talked about another kind of digital currency (crypto), described as “Bitcoin” is decentralized (with no backing) and is based on public blockchain.

Bitcoin was created in 2009 on the heels of the global economic meltdown as peer-to-peer (digital) cash system and its father is believed to be Satoshi Nakamoto, who still remains a mystery! The number of Bitcoins will ever issue is fixed to 21 million! At the time of introduction, Bitcoin had no value ($0.00) but by July-end 2010 it was traded at $0.08 and by April 2013 it jumped to $250.

Since then, it has appreciated significantly through very volatile rides. By some estimates, to date there are about 18.8 million Bitcoins in circulation and by 2140 its circulation will reach its maximum 21 million target. As of November 26, 2021, the combined market value of the world’s Bitcoins totaled over $1.03 trillion after reaching its all-time high of $1.22 trillion on November 7, 2021.

This shows that even after over a decade since its introduction, it is still very volatile. Even though it stays very volatile, this does not deter corporate America to owning and reporting it publicly on their balance sheets as a new asset class and a hedge against inflation and the greenback’s depreciation.

Like the “Fiat” currency, digital currency is also issued and backed by countries’ central banks. According to the latest Atlantic Council (a US-based think tank) report, currently there are 87 countries representing 90 per cent of the global GDP that are actively pursuing digital currency.

(To be continued on Saturday)

(The writer is Executive Director, Polykemya Int’l)

This article first appeared in Business Recorder on Dec 2 2021