Pakistan loses an estimated $600 million through illicit cryptocurrency activity, sparking serious concerns about the impact on national foreign reserves and the country’s financial stability.
What’s Happening — The Mechanics of the Drain
According to industry insiders, many Pakistanis are engaging in a complex cycle of financial transaction abuse: they first buy US dollars from licensed exchange companies, deposit them into foreign currency (FCY) accounts, then withdraw those funds and use them to purchase cryptocurrency through illegal or unregulated channels.
This pattern has struck a blow to dollar sales within the formal banking system. Exchange company data shows a 23% drop in dollar sales to banks over ten months, compared to the same period last year.
The Consequences
- The disappearance of this $600 million has seriously reduced the flow of dollars into Pakistan’s banking sector.
- While commercial banks’ dollar holdings have increased modestly (from about $4.18 billion to $4.63 billion), this doesn’t fully offset the untraced outflows.
- Regulators, including the State Bank of Pakistan (SBP), are under pressure. The SBP has issued a circular instructing banks and exchange companies to stop handing out cash dollars and instead deposit them directly into FCY accounts.
- Policymakers worry that this rising trend of illegal cryptocurrency investments could undermine broader efforts to preserve foreign exchange reserves.
Regulatory Response & Broader Risks
- The SBP’s crackdown on cash dollar withdrawals is a step, but enforcement remains a challenge.
- Meanwhile, Pakistan’s foreign reserves stand at around $14.55 billion, with hopes to increase to $17 billion by FY 2026, aided by IMF support and remittances.
- Despite this, financial experts warn that unmonitored crypto outflows could jeopardize macroeconomic stability.
- At the same time, the government is trying to balance regulation: while crypto remains “illegal” under current rules, authorities are exploring a regulatory framework through the Pakistan Crypto Council.
Why This Matters for Pakistanis
- Financial Stability Threat — The massive outflow of dollars weakens Pakistan’s ability to defend its currency and service debt.
- Regulatory Gray Zone — Without clear and enforceable crypto laws, illegal financial transaction paths remain open, risking more capital flight.
- Investor Vulnerability — Ordinary people who are drawn into the promise of quick gains may fall prey to scams or unregulated crypto platforms.
- Macro Risk — If such illegal crypto transactions grow, they could undermine broader economic reforms and erode faith in formal financial institutions.
FAQs
Q1: How did Pakistan lose $600 million?
A1: Through illegal cryptocurrency transactions — dollars are bought, deposited into FCY accounts, then withdrawn and converted to crypto.
Q2: What has the State Bank of Pakistan done about it?
A2: It issued a circular prohibiting cash dollar withdrawals, forcing exchange companies and banks to transfer dollars directly into FCY accounts.
Q3: Is all cryptocurrency use illegal in Pakistan?
A3: Under current regulations, many crypto transactions are illegal, and the legal framework remains unclear.
Q4: What are Pakistan’s foreign exchange reserves now?
A4: Approximately $14.55 billion, with a target of $17 billion by FY 2026.
Q5: Can people report crypto fraud in Pakistan?
A5: Yes — the Pakistan Virtual Assets Regulatory Authority (PVARA) has a grievance cell for complaints related to crypto fraud.
