Pakistan’s potential adoption of a dollar-linked stablecoin in collaboration with US crypto firm World Liberty Financial may hasten the country’s dollarization, posing risks to its macroeconomic stability, as per a report in the Daily Mirror. The stablecoin’s peg to the dollar could sway preferences towards the US currency, nudging households to shift away from the Pakistani rupee as a store of value and medium of exchange. This move could heighten exchange-rate pressures and quicken the rupee’s depreciation, creating a feedback loop of instability.
The report cautioned that stablecoins, by circumventing traditional banks, could redirect household and business funds into unregulated digital wallets, potentially undermining the effectiveness of monetary policy in Pakistan. Given the country’s currency fragility, persistent balance-of-payments challenges, and limited monetary policy flexibility, endorsing a dollar-linked stablecoin might exacerbate instability rather than alleviate it. The confidence in the Pakistani rupee is already fragile due to inflation spikes, currency devaluations, and IMF-led stabilization efforts.
Moreover, the report highlighted concerns about stablecoin adoption draining deposits from local banks and disrupting monetary frameworks in vulnerable economies, echoing warnings from the IMF and the Bank for International Settlements. Despite the State Bank of Pakistan’s historical caution towards cryptocurrencies, a recent partnership with World Liberty Financial, a crypto firm linked to US President Donald Trump’s family, has granted quasi-official approval to a foreign-controlled stablecoin ecosystem. This move, influenced by internal pressures within Pakistan, could compromise the country’s monetary sovereignty and financial stability.
The report also underscored that stablecoins, being private liabilities, rely on reserve quality, legal enforceability, and the issuer’s ability to honor redemptions during crises. In contrast to advanced economies with robust oversight and deep markets, Pakistan lacks control over the stablecoin issuer and the capacity to manage a crisis involving a foreign-controlled stablecoin. These factors raise significant risks for Pakistan’s financial system and economic resilience.
