The Digital Rupee

Today, Pakistan is one of the least developed countries in terms of financial literacy and inclusion. While I won’t go into the reasons behind it, I want to discuss how we can advance our financial inclusion numbers quickly and substantially by creating a cryptocurrency out of the Pakistani Rupee (PakCoin or Digital Rupee).

I also fully understand that for an initiative like this to be pulled off would require an immense amount of political capital — — eeee-

Why Create a Crypto Asset

We need to create a cryptocurrency out of the rupee for three main reasons:

1. The ability to deploy smart contracts will be crucial in increasing adoption in the early stages (more below), while later on, it can be used to create a smart government.

2. The ability to be globally traded with minimal fees in the long-run will help with the inflow of capital into Pakistan (consequently outflows will also become easier, and I will address this later on)9

3. Have the PakCoin become a reserve currency in the future, the same way as the USD or the Yuan is today

In this article, we will not go into the details of the technical elements, but I will use a subsequent article to cover those topics. However, just to give you a rough idea; we will be creating a coin on top of an already existing protocol such as Ethereum, Neo, Stellar or others. We will also want to list the coin for direct trading on exchanges at some point in the future. One topic that this article will also very briefly touch on is the miner fees, which could become crucial to any large-scale implementation.

Key Objectives

• The coin must help in making Pakistan more financially inclusive

• The coin must be backed by PKR i.e. as a store of value

• The coin must be used regularly and become a medium of exchange

• The coin must be accepted by merchants, banks, and all govt. institutions

• Coins can be kept in a wallet or be deposited in a bank account

• The protocol must maintain the privacy of the users

The PakCoin Wallet Requirements

While the PakCoin will be built on top of a protocol like Ethereum, I also envision a PakCoin Wallet to be created in parallel to give additional features to Pakistani citizens.

The PakCoin wallet will be built for primarily Android and iPhone users. However, certain features will also be available for feature phone users via USSD.

The requirements include:

  • Ability to create a wallet using NADRA (National Database and Registration Authority) verification

  • Creating and issuing 3 types of public keys (Long alphanumeric string, e.g., 0x562bb56de196bcd30dac3835055316078733fb83; Verified phone number, 03008561123; Domain name similar to ENS, e.g., adamdawood.eth)

  • The private key will also be created and held within the wallet

  • Simple QR code features to receive and send money from wallet to wallet

  • Money transfer facility via IBFT to local bank accounts

  • Receive money via IBFT (pull & push) from local bank accounts

  • Access dApps (eventually)

Becoming a Medium of Exchange

For the PakCoin to become a medium of exchange, I propose the following:

  1. The SBP to issue newly issued coins to all registered wallets (1 wallet per CNIC) every X period

  2. The newly issued coins to be available in the individual’s wallet for a period of Y days

  3. For every newly minted PakCoin that is transacted within the Y days’ period, it should be converted into a permanent coin

  4. All coins that have not been used in a transaction during the period to be destroyed

  5. After all unused coins are destroyed, a new round of coins to be issued. However, a greater portion of coins should be given to those who are doing a larger number of transactions with the largest number of people or those who have more coins stored in their wallet. This will incentivise people to spend their coins.

Doing this for a period of 6–9 months should result in high levels of adoption. Also, those who directly credit more coins into their account via their bank account should also be given a large subset of coins during each free coin distribution.

The Cypto Bank of Pakistan

The Crypto Bank of Pakistan (CBP) will be a new Bank that will be incorporated and run by the State Bank of Pakistan. Its primary purpose will not be to do any conventional banking for customers (i.e., loans/savings accounts, etc.); instead, it will act as the custodian for all coins that are issued and will hold an equivalent amount in its reserves to maintain the parity of 1 PakCoin to 1 PKR. We will in effect be creating a stablecoin or an IOU coin as commonly referred within the crypto space.

The bank will also provide a mechanism whereby coins from customers’ wallets can be moved into traditional banking channels, hence facilitate IBFT movements to other banks as well as from the banks to customers’ wallets.

However, one crucial issue that needs to be discussed further is the question of who will decide on the issuance of new coins should there be any. I think we could set up a standard formula such as Milton Friedman’s k-percent rule to determine growth in the increase of the money supply by a fixed percentage each year.

While I understand the logic behind having a fully decentralised currency, I feel a larger debate would also be necessary to determine whether a nation should have some powers to shore up the currency when required.

Default Currency for Global Exchange (slowly)

When we create the Digital Rupee, it will end up being a link between the world of fiat currencies and digital currencies. Being a potential go-between will also mean that the currency can quickly flow out of the country causing a major problem in our already large deficit.

To counteract this, we will take a measured approach to making the PakCoin a global standard with some of the key points being:

  1. At launch, only those possessing a NIC card will be able to buy/hold/sell the coin.

  2. We will then open it up for purchases by non-Pakistanis who can hold the currency in CBP denominated wallets only.

  3. In addition, we will gradually open up the currency for active trading on third-party exchanges such as Binance. We will only open up the currency to global exchanges slowly.

Major Questions

  1. Will the state bank be allowed to print more money (quantitative easing) or should we let the money supply be locked in perpetuity like bitcoin after the initial growth period?

  2. How many coins will we need to issue in the growth period to ensure a large number of the population actually start using the wallets?

  3. Will the wallet be available only to smartphones, or should we create a feature phone equivalent as well?

Using Smart Contracts for a Smart Government

We can use smart contracts to create a smart government.

  • For all local taxes that are paid, the taxpayer can directly deposit a percentage of their taxes to a government department of their choice

  • Auto-deposit 10% of all parking tickets into a driver training program

  • Auto-depositing 50% of littering fines as an added budget for local maintenance/clean-up teams

References & Reading Material