Pakistan's Dollar-Linked Stablecoin Plan Risks Currency Crisis: Report

The report in the Daily Mirror said that a dollar-pegged stablecoin embeds a preference for the dollar as store of value and medium of exchange encouraging households to hold it as a state-tolerated alternative and move away from Pakistani rupee (PKR).

Currency substitution through stablecoins could intensify exchange‑rate pressures and activate a feedback loop that accelerates rupee weakness.

"For a country with a fragile currency, recurring balance-of-payments stress, and limited monetary policy space, the introduction of an officially endorsed dollar-linked stablecoin risks amplifying rather than reducing instability," the report said.

Further, the report noted that stablecoins bypass banks, diverting household and business liquidity into digital wallets outside the regulated system. In Pakistan, where monetary policy transmission depends heavily on banks' balance sheets, this could blunt the impact of interest‑rate changes and complicate liquidity management, it said.

The report highlighted that the confidence in PKR is already shaken by recurrent inflation spikes, sharp devaluations, and International Monetary Fund (IMF)-driven stabilization cycles.

The IMF has repeatedly warned that widespread stablecoin adoption could drain deposits from local banks and undermine monetary frameworks in vulnerable economies.

The Bank for International Settlements also argued that such instruments fail basic tests of sound money and pose risks to monetary sovereignty.

Despite State Bank of Pakistan historically having taken a cautious stance on crypto, the new agreement with US President Donald Trump's family-linked crypto business, World Liberty Financial, gave quasi‑official legitimacy to a foreign‑controlled stablecoin ecosystem, "under pressure from powers within Pakistan", the report said.

The report also warned that crypto coins are private liabilities, and their stability depends on the quality of the reserves, the legal enforceability of the instrument, and the issuer's ability to meet redemptions under stress.

"In advanced economies, such risks are mitigated by strong supervision and deep markets. Pakistan has neither control over the issuer nor the capacity to backstop a crisis involving a foreign-controlled stablecoin," the report highlighted.

- IANS