The Cryptocurrency Debate

Pakistan’s renewed institutional interest in cryptocurrency has been framed as an innovative step toward financial modernization. The establishment of a Ministry of Cryptocurrency has given the initiative a symbolic sense of direction. Yet the political momentum behind this portfolio often outpaces the economic logic required to sustain it.

Cryptocurrency continues to sit in a global regulatory grey zone, remains non-compliant with most interpretations of Islamic finance, and operates within a fragile domestic governance environment that is already struggling with financial oversight. In this context, the belief that cryptocurrency can serve as a pathway to economic alleviation reflects a gap between aspiration and institutional reality.

Supporters of crypto integration often draw on global narratives that frame digital assets as enablers of financial inclusion or engines of domestic innovation. These claims overlook the structural constraints within Pakistan’s economy. The Auditor General of Pakistan has repeatedly highlighted weaknesses in public financial controls, procurement oversight, and digital audit trails. Introducing a parallel asset class without a robust supervisory mechanism risks amplifying the very vulnerabilities the state is attempting to fix. Cryptocurrencies may offer decentralization, but decentralization in a weak regulatory environment can produce opacity, not efficiency.

Before advancing crypto adoption, Pakistan must ask a fundamental question: does this strengthen the state or weaken it? The answer, at present, remains uncertain. And in a fragile economy, uncertainty is not a foundation for reforma

There is also the question of religious and policy alignment. Pakistan’s stated economic trajectory is increasingly centred on Islamic finance. The State Bank of Pakistan’s roadmap for Shariah-compliant banking emphasises asset-backed transactions, real-economy linkages, and avoidance of speculative instruments.

Crypto assets, however, derive value primarily from price volatility rather than physical economic activity. Their classification as gharar (excessive uncertainty) by many Islamic finance scholars makes their mainstream adoption difficult to reconcile with the country’s broader institutional commitments. Promoting an asset that does not meet the principles of risk-sharing and asset-linkage undermines the coherence of Pakistan’s financial reform agenda.

A second layer of concern relates to global governance. Major financial jurisdictions including the European Union, United Kingdom, and several Gulf states have tightened cryptocurrency regulation due to risks relating to money laundering, consumer protection, and financial crime. Pakistan’s Financial Action Task Force history underscores the importance of stringent oversight. Integrating crypto into an environment where traditional financial monitoring already faces capacity constraints, could complicate compliance rather than enhance it. Without clear regulations, investor protections, or custodial safeguards, cryptocurrency risks becoming a conduit for capital flight or illicit transactions.

This debate intersects with another evolving area of global economic policy: the rise of central bank digital currencies, or e-currencies, which the IMF has increasingly recommended to developing economies seeking transparency, inclusion, and formalization.

Unlike cryptocurrencies, e-currencies are state-backed, regulated, and fully traceable. The IMF argues that digital sovereign currencies can strengthen tax compliance, reduce cash-based leakages, and lower transaction costs for low-income populations. Several countries including Nigeria, China, and the Bahamas have already operationalized versions of digital legal tender. These models highlight an important distinction: while e-currencies can support state capacity, cryptocurrencies often bypass it entirely. Pakistan’s policy conversation frequently conflates the two, despite their fundamentally different implications for governance. A state-backed digital rupee could, over time, expand financial access and strengthen fiscal monitoring. A privately held crypto-asset cannot perform this institutional function.

Economically, the assumption that cryptocurrency can attract foreign investment or generate export revenue remains speculative. Global crypto markets have shown extreme price swings, with total market capitalization falling from over $3 trillion in late 2021 to nearly $1 trillion in 2022 before partially recovering.

These fluctuations make it impractical as a foundation for economic resilience. Pakistan’s priority is predictable capital flows, not volatility-driven financial cycles. Moreover, cryptocurrency mining requires stable electricity supply, high computing capacity, and low-cost energy: all areas where Pakistan faces systemic deficits.

Pakistan’s own fiscal oversight challenges further complicate the case for cryptocurrency adoption. The Auditor General of Pakistan’s most recent reports highlight recurring discrepancies in public accounts, weak documentation trails, and gaps in financial controls across several ministries. Introducing crypto assets into an already fragile accounting environment risks amplifying these inconsistencies.

Digital tokens that lack clear valuation mechanisms, audit trails, or standardized reporting frameworks could create new blind spots in public finance. In a system where conventional cash flows are often difficult to reconcile, adding a decentralized and technically complex asset class may widen the space for misappropriation in ways the general public cannot easily detect or contest.

The governance challenges are equally significant. Regulatory grey zones create opportunities for fragmentation rather than reform. A decentralised system cannot substitute for institutional stabilization. Pakistan’s economy requires structural improvements in tax administration, industrial competitiveness, trade balance, and energy governance. Cryptocurrency does not address any of these fundamentals. If anything, it risks diverting attention from more urgent reforms.

There is also a geopolitical dimension. International financial institutions evaluate countries not only on economic indicators but on regulatory predictability. The World Justice Project ranks Pakistan 129 out of 142 countries in regulatory enforcement. A premature embrace of cryptocurrency without strong institutional safeguards may reinforce perceptions of fragility in Pakistan’s financial system. This matters for global credit ratings, development financing, and investment confidence.

Cryptocurrency can be a subject of academic interest, technological experimentation, or private investment. But its role as a national economic strategy requires far greater caution. Pakistan must differentiate between innovation that strengthens institutions and innovations that bypass them. The country’s economic recovery depends less on speculative financial instruments and more on disciplined governance, regulatory clarity, and long-term structural reform.

Before advancing crypto adoption, Pakistan must ask a fundamental question: does this strengthen the state or weaken it? The answer, at present, remains uncertain. And in a fragile economy, uncertainty is not a foundation for reform.