<p>Pakistan is making a big bet on crypto. After years of operating with a contradictory regulatory stance on cryptocurrency, the State Bank of Pakistan (SBP) in September 2025 signalled serious intent to legalise digital assets and withdrew a 2018 directive that banned financial institutions from dealing in crypto. </p><p>Subject to parliamentary ratification, it also announced its plans to launch a central bank-backed digital currency (CBDC).</p>.<p>But beyond loud announcements and sandbox experiments, any serious crypto adoption by Pakistan is a net negative for both its economy and India’s national security. The sudden, desperate overture to integrate cryptocurrency into its economy seems to be an opportunistic gamble aimed at wooing the Trump administration. </p><p>The SBP unveiled a set of policy proposals that, if approved, would give cryptocurrencies the status of legal tender on November 4, 2024, just a day before the US presidential elections. Pakistan announced the creation of a strategic reserve exclusively focused on Bitcoin, publicly acknowledging Trump’s role in this initiative. Furthermore, the partnership between World Liberty Financial, a crypto firm with a 60% stake of the Trump family, and the Pakistan Digital Assets Authority has attracted global controversy.</p>.<p>One outcome of this outreach is that Trump seems to have a favourable stance towards Pakistan in his second term – a marked deviation from US-Pakistan relations in recent years. A potential shift in US policy – hyphenating India and Pakistan and legitimising Pakistan’s military establishment – would undermine India’s interests in the subcontinent.</p>.<p>Despite the tentative diplomatic wins, deep-seated structural vulnerabilities make Pakistan acutely susceptible to new economic risks introduced by cryptocurrency, without solving many existing ones. Pakistan suffers from chronic fiscal mismanagement, a narrow tax base, low foreign investment, high debt, and heavy reliance on imported energy – it has already been bailed out by the IMF 25 times since 1958.</p>.<p>Cryptocurrency’s historical volatility makes using bitcoin as a strategic reserve fundamentally incompatible with the stability mandate of foreign exchange reserves. Reserves are meant to provide a financial safety net against external vulnerabilities such as currency depreciation, increased capital outflows or a drop in exports, and help with the continued ability to import essential commodities.</p>.<p>Accepting crypto as legal tender could lead to de facto dollarisation through currency substitution to dollar-based stablecoins. Residents preferring crypto over the Pakistani Rupee (PKR) would reduce its demand, leading to further currency depreciation, costly imports, and higher inflation. Even if crypto is only restricted to being an investment avenue, the migration of savings from PKR deposits to digital wallets would weaken the Central Bank’s monetary policy. Pakistan already has a thriving crypto user base of an estimated two crore users, significantly higher than the 4.2 lakh people who invest in the country’s capital markets, making these risks very likely.</p>.<p>Finally, a widespread use of crypto could severely weaken the State’s ability to collect tax revenue, impacting provisions of public goods, governance, maintaining law and order, and welfare expenditure. All of these could exacerbate Pakistan’s poor socioeconomic indicators, destabilise its society, and raise the risk of sub-conventional warfare against India as a way for the Pakistani State to legitimise itself.</p>.<p><strong>A strategic threat</strong></p>.<p>The greatest concern for India in Pakistan’s adoption of crypto lies in how the country’s permissive crypto environment could be exploited by its Military-Jihadi Complex (MJC). Cryptocurrency’s pseudonymous and borderless nature enables sanctions evasion, funding cross-border terrorism, and money laundering. Hamas and ISKP are already utilising complex crypto networks to circumvent governmental detection. Given that the MJC is functionally intertwined with anti-India outfits, the formalisation of the crypto sector raises concerns about the potential for terror financing against India.</p>.<p>The rise of blockchain-enabled hawala further complicates the tracking of illicit cross-border capital for Indian intelligence agencies. A thriving crypto market in Pakistan, the UAE, and Singapore would pressure India to reconsider its crypto stance domestically to curb illicit capital outflow.</p>.<p>Given that crypto integration into an economy is complex and would require extensive State capacity, Pakistan’s push for crypto adoption is likely a matter of temporary flirtation aimed at gaining lobbying power with the Trump administration, with no ability or intent to follow through. As evidenced by the IMF’s recent rejection of Pakistan’s proposal to subsidise power for bitcoin mining, the country is also unlikely to garner much-needed international institutional support for these experiments.</p>.<p>However, the short-term leverage this move gives Pakistan is a pressing concern for India. India must closely monitor Pakistan’s domestic developments in the crypto domain and respond appropriately if crypto integration in the Pakistani economy directly impinges on its interests.</p>.<p><em>(The writers are researchers at the Takshashila Institution)</em></p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
<p>Pakistan is making a big bet on crypto. After years of operating with a contradictory regulatory stance on cryptocurrency, the State Bank of Pakistan (SBP) in September 2025 signalled serious intent to legalise digital assets and withdrew a 2018 directive that banned financial institutions from dealing in crypto. </p><p>Subject to parliamentary ratification, it also announced its plans to launch a central bank-backed digital currency (CBDC).</p>.<p>But beyond loud announcements and sandbox experiments, any serious crypto adoption by Pakistan is a net negative for both its economy and India’s national security. The sudden, desperate overture to integrate cryptocurrency into its economy seems to be an opportunistic gamble aimed at wooing the Trump administration. </p><p>The SBP unveiled a set of policy proposals that, if approved, would give cryptocurrencies the status of legal tender on November 4, 2024, just a day before the US presidential elections. Pakistan announced the creation of a strategic reserve exclusively focused on Bitcoin, publicly acknowledging Trump’s role in this initiative. Furthermore, the partnership between World Liberty Financial, a crypto firm with a 60% stake of the Trump family, and the Pakistan Digital Assets Authority has attracted global controversy.</p>.<p>One outcome of this outreach is that Trump seems to have a favourable stance towards Pakistan in his second term – a marked deviation from US-Pakistan relations in recent years. A potential shift in US policy – hyphenating India and Pakistan and legitimising Pakistan’s military establishment – would undermine India’s interests in the subcontinent.</p>.<p>Despite the tentative diplomatic wins, deep-seated structural vulnerabilities make Pakistan acutely susceptible to new economic risks introduced by cryptocurrency, without solving many existing ones. Pakistan suffers from chronic fiscal mismanagement, a narrow tax base, low foreign investment, high debt, and heavy reliance on imported energy – it has already been bailed out by the IMF 25 times since 1958.</p>.<p>Cryptocurrency’s historical volatility makes using bitcoin as a strategic reserve fundamentally incompatible with the stability mandate of foreign exchange reserves. Reserves are meant to provide a financial safety net against external vulnerabilities such as currency depreciation, increased capital outflows or a drop in exports, and help with the continued ability to import essential commodities.</p>.<p>Accepting crypto as legal tender could lead to de facto dollarisation through currency substitution to dollar-based stablecoins. Residents preferring crypto over the Pakistani Rupee (PKR) would reduce its demand, leading to further currency depreciation, costly imports, and higher inflation. Even if crypto is only restricted to being an investment avenue, the migration of savings from PKR deposits to digital wallets would weaken the Central Bank’s monetary policy. Pakistan already has a thriving crypto user base of an estimated two crore users, significantly higher than the 4.2 lakh people who invest in the country’s capital markets, making these risks very likely.</p>.<p>Finally, a widespread use of crypto could severely weaken the State’s ability to collect tax revenue, impacting provisions of public goods, governance, maintaining law and order, and welfare expenditure. All of these could exacerbate Pakistan’s poor socioeconomic indicators, destabilise its society, and raise the risk of sub-conventional warfare against India as a way for the Pakistani State to legitimise itself.</p>.<p><strong>A strategic threat</strong></p>.<p>The greatest concern for India in Pakistan’s adoption of crypto lies in how the country’s permissive crypto environment could be exploited by its Military-Jihadi Complex (MJC). Cryptocurrency’s pseudonymous and borderless nature enables sanctions evasion, funding cross-border terrorism, and money laundering. Hamas and ISKP are already utilising complex crypto networks to circumvent governmental detection. Given that the MJC is functionally intertwined with anti-India outfits, the formalisation of the crypto sector raises concerns about the potential for terror financing against India.</p>.<p>The rise of blockchain-enabled hawala further complicates the tracking of illicit cross-border capital for Indian intelligence agencies. A thriving crypto market in Pakistan, the UAE, and Singapore would pressure India to reconsider its crypto stance domestically to curb illicit capital outflow.</p>.<p>Given that crypto integration into an economy is complex and would require extensive State capacity, Pakistan’s push for crypto adoption is likely a matter of temporary flirtation aimed at gaining lobbying power with the Trump administration, with no ability or intent to follow through. As evidenced by the IMF’s recent rejection of Pakistan’s proposal to subsidise power for bitcoin mining, the country is also unlikely to garner much-needed international institutional support for these experiments.</p>.<p>However, the short-term leverage this move gives Pakistan is a pressing concern for India. India must closely monitor Pakistan’s domestic developments in the crypto domain and respond appropriately if crypto integration in the Pakistani economy directly impinges on its interests.</p>.<p><em>(The writers are researchers at the Takshashila Institution)</em></p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
