Former FBR chairman Shabbar Zaidi cautions that cryptocurrencies may evolve into a hawala alternative in Pakistan, citing regulatory challenges, anonymity, and widespread adoption among millions of users.
Crypto and the Hawala Parallel
Former Federal Board of Revenue (FBR) chairman and noted economist Shabbar Zaidi has warned that cryptocurrencies could serve as an alternative to the traditional hawala system in Pakistan.
Speaking at a session titled Adopting Digital Currency and Cryptocurrency in Pakistan: Possibilities and Concerns, organised by the Pakistan Institute of International Affairs (PIIA), Mr Zaidi outlined the difficulties of regulating virtual currencies in the country’s tightly controlled financial environment.
“Pakistan cannot regulate cryptocurrencies within its current financial system, as the State Bank tightly manages foreign exchange, but virtual assets may still serve as an alternative to hawala,” he said.
Regulatory Hurdles in a Controlled Economy
Mr Zaidi noted that a law aimed at enabling cryptocurrency regulation had been passed and was under discussion in parliament. However, he stressed that cryptocurrencies, by their very nature, resist control.
“Cryptocurrencies flourish because they leave no trail. A currency born unregulated cannot be regulated,” he argued.
He contrasted Pakistan’s rigid foreign exchange framework with the United States, where banks and investors operate in a more liberal environment. “In Pakistan, commercial banks cannot buy and sell dollars without the State Bank’s permission,” he said.
Widespread Adoption Among Pakistanis
According to Mr Zaidi, nearly nine million Pakistanis are already holding or trading digital assets, with Bitcoin emerging as the most popular. He pointed out that such currencies are increasingly being used in trade transactions, particularly with China, where under-invoicing practices mirror hawala-like mechanisms.
“This is not about being too fast or too slow in adoption. The reality is that our system cannot regulate it,” he remarked.
Trust, Anonymity, and Global Examples
Emphasising that all currencies are rooted in trust, Mr Zaidi said: “Digitisation is about documentation and traceability. Crypto thrives on the opposite — anonymity and lack of control.”
He suggested that while asset-backed cryptocurrencies could, in theory, be introduced, demand for them would likely remain muted, as unregulated digital assets allow holders to convert black money into white.
Drawing comparisons abroad, he noted that India had formally rejected cryptocurrencies, whereas in the United States, adoption has continued to grow.
Politics and the Crypto Debate
Mr Zaidi also linked cryptocurrency debates to politics in the United States, citing claims that the Trump family profited significantly from the sector. “Mr Zaidi quoted a banker as saying the Trump family earned $2.4bn through virtual currencies during their time in office,” the report noted.
He further argued that political divisions had shaped US attitudes toward digital assets. “Similarly, a trusted digital currency could emerge as a medium of payment worldwide,” he said, pointing to the US dollar’s dominance today and the British pound’s historical role.
The Road Ahead
As Pakistan grapples with balancing digitisation and financial transparency, Mr Zaidi’s warning underscores a looming challenge: whether cryptocurrencies will remain beyond the reach of regulators and grow into a modern-day hawala system.
