Pakistan’s announcement of a dollar-backed stablecoin collaboration with U.S.-based World Liberty Financial has ignited fears of economic self-sabotage. A comprehensive report reveals how this could supercharge U.S. dollar reliance, hastening the Pakistani rupee’s downward spiral and jeopardizing overall stability.
As outlined in the Daily Mirror analysis, these stablecoins act as dollar proxies, elevating the USD as preferred for savings and payments. Consequently, the public may shun the rupee, amplifying its marginalization in the financial landscape.
Currency replacement via stablecoins exerts relentless strain on forex markets, potentially unleashing a depreciation vortex. Pakistan’s currency, scarred by inflation surges, devaluation bouts, and IMF rescue rituals, teeters on eroded confidence.
The verdict is clear: In an economy plagued by payments deficits and policy straitjackets, greenlighting dollar stablecoins courts heightened turbulence over relief.
Liquidity leakage poses another threat. Stablecoins siphon funds from banks to off-grid digital repositories, hobbling monetary policy efficacy. With Pakistan’s framework bank-dependent, interest rate signals weaken, and liquidity steering grows unwieldy.
The central bank’s crypto skepticism contrasts sharply with this deal, which lends partial official sanction to a foreign-led stablecoin realm amid reported domestic lobbying.
Consensus from global institutions reinforces the dangers. The IMF cautions against deposit outflows eroding bank stability in fragile settings. BIS contends these assets defy currency integrity tests, endangering policy autonomy.
Fundamentally, stablecoin viability rests on reserve robustness, enforceability, and issuer fortitude amid shocks. Advanced economies buffer these via supervision and markets; Pakistan confronts issuer-blind exposure and remedial impotence.
Facing this crossroads, authorities must balance fintech promise against existential risks. Proceed unwisely, and the rupee’s frailty could culminate in full-blown crisis.