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GOVERNMENTS everywhere are rethinking how digital value should be governed. In an earlier article (‘Crypto moment?’) on these pages in September, I had surveyed the evolving landscape for cryptocurrencies and other digital assets (DAs) in Pakistan. To close, it was emphasised that while this is an area with much potential, the quality of government regulation would be critical to its growth and success.
The irony at the heart of cryptocurrency regulation is that the original design envisaged a decentralised digital asset, free of government oversight or control. A libertarian vision, if you will. Regulation will compromise this design. Yet, if cryptocurrencies aspire to something beyond a small niche in the global financial system, some degree of regulation is inevitable.
The financial sector is the most closely regulated sector globally. The underlying rationale has two aspects. Any malfunction or breakdown of the sector hits the savings and financial well-being of citizens and causes systemic risk to the broader economy. Pakistan has long operated a twin-regulator model: the SBP for banking and the SECP for financial markets. In July 2025, the Virtual Assets Ordinance (VAO) was enacted, creating the Pakistan Virtual Assets Regulatory Authority (PVARA), a third regulatory body.
The need for a new regulatory body is questionable. Building new institutions from scratch is never easy and Pakistan’s experience is bleak. We have a paucity of quality human resources and a history of external pressures, compromising the working of most of our regulatory bodies. SBP and SECP each have decades of rich experience and a certain clout and track record, albeit with lapses. These institutional strengths should have been leveraged. Globally, only two countries have separate regulators for DAs — the UAE and El Salvador — which is telling.
Nevertheless, accepting PVARA as a fait accompli, to design effective regulation, we might look to global principles. The International Organisation of Securities Commissions (IOSCO), the global association of securities regulators, has three core objectives of regulation: protecting investors; ensuring that markets are fair, efficient and transparent; and reducing systemic risk. Everything flows from these objectives.
Some degree of regulation is inevitable.
One of the IOSCO’s principles is uniformity across markets. It stated in November 2023 that it wants “optimal consistency in the way crypto-asset markets and securities markets are regulated … in accordance with the principle of ‘same activities, same risks, same regulation/ regulatory outcomes’”. In other words, crypto markets should not be exempt from the tried and tested principles of regulation. To do otherwise would present two serious problems. It would encourage regulatory arbitrage, whereby investors and participants move to less regulated markets with looser oversight, heightening systemic risk. It would also undermine the principle of competitive neutrality, the idea that various economic activities should compete on an even footing, without government favours.
Business lobbies always argue for special treatment. Tech and tech-based industries are especially fond of this argument globally, on the basis that what they are doing is so new that the old rules don’t apply. This must be resisted. Practically, regulation always has to strike a balance between managing risk and innovation. The onus is on industry to innovate, not the regulator. The regulator has only to take care that it does-n’t stifle innovation.
VAO envisages permitting a range of activities to establish an ecosystem for the issuance, trading and custody of DAs. Going forward it will be critical that only credible parties are lice-nsed. It is a hallmark of financial regulation that licensing is very selective and the subsequent supervision very stringent.
The sequencing of permitted activities is also important. Stablecoins, a special kind of cryptocurrency, will probably be the first to be permitted. Stablecoins are backed 1:1 with real assets, which provides a rigorous basis for their valuation, thus eliminating the speculation and violent price fluctuations other cryptocurrencies experience. Internationally, many jurisdictions are focusing on this area. In July 2025, the US enacted the GENIUS Act, its first federal law establishing a framework for stablecoins.
DAs hold the promise of great innovation. A prime case in the Pakistani context could be inward remittances, where their usage can significantly improve speed, efficiency and cost for consumers. More broadly, in an informal, underbanked system like ours, DAs can deliver on the old promise of financial inclusion to a large number of citizens. Over to you, PVARA.
The writer is a member of the Economic Advisory Group.
Published in Dawn, November 1st, 2025
