The crypto crossroads: Pakistan’s struggle between promise and policy

The debate around crypto currency in Pakistan reflects a broader global struggle between the promise of technological innovation and the imperatives of financial regulation. In a world where digital finance is expanding at unprecedented speed, Pakistan finds itself at the crossroads of opportunity and risk.

On the one hand, crypto currencies present a new frontier in financial inclusion, cross-border transactions, and technological advancement; they, on the other, embody volatility, speculation, and regulatory uncertainty that can destabilise fragile economies such as ours.

Pakistan’s financial system has historically been dominated by cash, with over 100 million adults still excluded from formal banking channels. This structural weakness has provided fertile ground for digital platforms, from mobile wallets such as Easypaisa and JazzCash to the State Bank of Pakistan’s Raast system, which aims to expand financial access. Yet, while such systems remain under sovereign oversight, crypto currencies operate in a decentralized, largely unregulated space. This distinction is crucial.

Central bank digital currencies (CBDCs), now being piloted in countries like China and debated by several others, are digital forms of sovereign money, while crypto currencies such as Bitcoin and Ethereum remain detached from state authority and susceptible to extreme price fluctuations.

The allure of crypto currencies for many Pakistanis is undeniable. In times of currency depreciation and inflation, digital coins appear to offer a hedge, as well as opportunities for profit through speculation. Global studies highlight that adoption tends to be higher in economies with weak financial systems, where trust in conventional institutions is limited. In Pakistan, a young and tech-savvy population has gravitated toward these digital assets, often through online platforms, seeking to participate in what they see as the financial revolution of tomorrow. For them, crypto currencies represent not merely an investment but also an expression of inclusion in a borderless economy.

A particularly relevant dimension of this debate lies in the growing use of crypto currencies by Pakistan’s freelance community. Ranked as the fourth largest in the world, Pakistan’s freelancers contribute over $400 million annually to the national economy.

However, the absence of international payment gateways such as PayPal has forced many freelancers to rely on informal channels or crypto currency-based transactions—especially using Bitcoin and stable coins such as USDT on platforms like Binance. While these methods offer advantages such as transaction speed, lower fees, and improved financial access, they also introduce systemic risks.

The lack of a formal regulatory and taxation framework leads to revenue leakage—estimated between $1–2 billion in untaxed freelance earnings each year due to crypto-based transactions. Moreover, security vulnerabilities associated with unregulated digital exchanges expose users to scams, cyber fraud, and currency volatility. Adding to the complexity, IMF stipulations under the $3 billion bailout package require Pakistan to develop mechanisms for taxing crypto assets and improving fiscal transparency. Thus, while crypto transactions help freelancers bypass restrictions, they also highlight the urgent need for comprehensive digital financial governance.

Despite the growing adoption, the risks associated with crypto currency use remain substantial. Crypto currencies are inherently volatile, capable of wiping out fortunes within days. Their decentralized and anonymous nature makes them a conduit for money laundering and illicit capital flows. For Pakistan—having only recently exited the Financial Action Task Force (FATF) grey list—unregulated adoption could reignite global concerns over compliance and financial transparency. This explains the State Bank of Pakistan’s (SBP’s) cautious yet firm stance: it neither legalizes nor entirely bans crypto currency trading but consistently warns investors of its dangers. This approach reflects a pragmatic balancing act—encouraging innovation while preserving monetary stability.

Globally, the regulatory landscape offers lessons. El Salvador’s experiment of adopting Bitcoin as legal tender has produced mixed results, while India and Vietnam have opted for regulatory approaches that balance innovation and oversight. India has introduced a 30 percent tax on crypto earnings and requires all transactions to be reported, while Vietnam has launched state-supervised blockchain pilot projects. For Pakistan, with limited institutional capacity and low financial literacy, such hybrid approaches offer valuable insights.

Moreover, Pakistan’s vulnerability to climate shocks, particularly the catastrophic floods of 2022 and the ongoing 2025 flood crisis, adds another dimension to this discourse. Blockchain-based financial systems could play a transformative role in ensuring transparency and accountability in disaster relief and welfare disbursement. Properly regulated digital platforms could reduce leakages, ensure efficient fund transfers, and enhance resilience in emergency situations.

However, without institutional safeguards and financial literacy, the adoption of cryptocurrencies in such contexts could deepen social inequities and expose vulnerable populations to exploitation.

Pakistan’s policymakers face a pivotal decision. The country can neither afford to ignore the crypto revolution nor embrace it recklessly. What is required is a balanced policy framework—one that ensures taxation, transparency, and investor protection while enabling innovation. This includes exploring a state-backed digital currency, improving regulatory coordination between the SBP and SECP, and integrating crypto taxation in line with IMF recommendations.

In an economy battling inflation, external debt, and climate-induced instability, financial trust and transparency are essential. Crypto currencies represent both an opportunity and a threat: a tool for empowerment if regulated wisely, but a destabilising force if left unchecked. The path forward lies not in prohibition or blind adoption, but in deliberate regulation—one that enables Pakistan to harness innovation while safeguarding financial sovereignty.

Copyright Business Recorder, 2025