Pakistan’s bold move to embrace a dollar-pegged stablecoin in partnership with U.S. crypto firm World Liberty Financial could spell disaster for its already fragile economy. A new report warns that this initiative might deepen the country’s dependence on the U.S. dollar, accelerating the Pakistani rupee’s decline and undermining broader financial stability.
The report, published by Daily Mirror, highlights how dollar-linked stablecoins reinforce the dollar’s role as a store of value and medium of exchange. This shift could entice ordinary Pakistanis to abandon their local currency in favor of digital dollars, boosting dollar acceptance at the expense of the rupee.
Experts caution that widespread adoption of stablecoins may trigger currency substitution, piling pressure on exchange rates. In a vicious cycle, this could further weaken the rupee, already battered by chronic inflation, sharp devaluations, and repeated IMF bailout cycles.
“For a nation grappling with a weak currency, persistent balance-of-payments strains, and limited monetary policy room, officially endorsing a dollar-backed stablecoin risks amplifying instability rather than alleviating it,” the report states bluntly.
Beyond exchange rate woes, stablecoins bypass traditional banks, diverting household and business liquidity into unregulated digital wallets. In Pakistan, where monetary policy transmission hinges heavily on bank balance sheets, this could blunt the impact of interest rate adjustments and complicate liquidity management.
The State Bank of Pakistan has long maintained a cautious stance on cryptocurrencies. Yet, the recent deal with World Liberty Financial—linked to Donald Trump’s family—grants semi-official legitimacy to a foreign-controlled stablecoin ecosystem, reportedly under pressure from domestic power brokers.
International bodies echo these concerns. The IMF has repeatedly flagged risks of deposit flight from local banks and erosion of monetary frameworks in vulnerable economies. The Bank for International Settlements argues that such instruments fail basic solid currency standards and threaten monetary sovereignty.
Stablecoins, as private liabilities, derive stability from reserve quality, legal enforceability, and issuer solvency during crises. While developed markets mitigate these risks through robust oversight and deep liquidity, Pakistan lacks control over the issuer or capacity to handle crises in foreign-dominated stablecoin systems.
As Pakistan navigates this high-stakes experiment, the report urges policymakers to weigh long-term sovereignty against short-term innovation allure. Failure to do so could hasten the rupee’s unraveling, leaving the economy more exposed than ever.