Shobhankita Reddy, Anupam Manur
This paper finds that Pakistan’s recent push to adopt cryptocurrency is a net negative for its economy and India’s national security if implemented beyond mere announcements and experiments. Given the structural vulnerabilities in Pakistan’s economy, making crypto a legal tender or allocating a portion of the country’s strategic reserves in crypto is only likely to expose the country to new economic risks rather than mitigating existing ones. However, it could benefit from the potential of crypto for evading sanctions, funding cross-border terrorism and emerging as a hub for money laundering.
Further, the findings suggest that Pakistan becoming a thriving crypto hub and the potential takeover of the country’s crypto assets by its Military-Jihadi Complex (MJC) is the worst-case scenario for India’s interests.
The paper concludes that Pakistan’s move to adopt crypto is helping cultivate favour with the Trump administration in the immediate term. India must monitor Pakistan’s domestic developments in crypto integration and respond appropriately if they directly impinge on its interests.
The authors would like to express their sincere gratitude to Anisree Suresh and Anushka Saxena for their valuable feedback and research guidance.
1. Introduction
For years, Pakistan’s stance on cryptocurrency has been mired in contradictions. While Pakistan’s central bank, the State Bank of Pakistan (SBP), continued to classify digital currencies as illegal, government committees intermittently explored their potential for applications in financial inclusion. At the same time, Pakistani citizens adopted cryptocurrency with great enthusiasm, making the country a thriving hub for its usage.
While data for cryptocurrency adoption varies, it does appear that by 2022, crypto was popular in Pakistan with the country ranking in the top ten in several global adoption indices. Pakistan is currently estimated to have 2 crore users, a number significantly higher than the 4.2 lakh people who invest in the country’s capital markets.1 Separately, Pakistan has an estimated 4 crore operational crypto wallets.2
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