Pakistan has recorded an estimated $600 million loss due to illegal cryptocurrency transactions, creating further pressure on the country’s already strained foreign exchange landscape. The continuous movement of dollars from exchange companies into unregulated crypto channels has sharply reduced the inflow of foreign currency into the banking system, raising concerns among policymakers and financial regulators.
According to the Exchange Companies Association of Pakistan Chairman Malik Bostan, the change in dollar flow is both significant and alarming. He stated that during the first ten months of the previous calendar year, exchange companies sold around $4 billion to banks. However, this figure fell to $3 billion during the same period this year. He explained that a large portion of these missing dollars has been diverted into cryptocurrencies through unlawful routes, contributing to an expanding underground digital investment market.
Bostan detailed the mechanism behind these losses, noting that individuals are purchasing dollars from exchange companies and depositing them into their foreign currency accounts. Once deposited, many withdraw the physical dollars and channel them into cryptocurrencies using illegal transaction networks that operate outside the State Bank’s regulatory framework. Between January and October this year, Pakistanis collectively retained an estimated $400 million in their foreign currency accounts, while approximately $600 million exited the system without any verifiable trail.
In response to the growing misuse of physical currency, the State Bank issued a circular instructing banks and exchange companies to discontinue the provision of cash dollars for deposit purposes. Instead, all funds must be transferred directly into foreign currency accounts. Exchange companies are now issuing cheques or conducting direct transfers rather than supplying cash. Despite these measures, Chairperson Malik Bostan noted that the newly deposited dollars are still being withdrawn from the banking system and eventually routed into crypto investments, negating the intended impact of the regulatory change.
Dollar sales data further illustrates the declining supply to banks. During the first four months of the current fiscal year, exchange companies sold a total of $873 million to banks, compared to $1.139 billion during the same period the previous year, marking a 23 percent decline. Month-by-month figures show similar drops, despite strict monitoring at borders with Afghanistan and Iran. However, State Bank statistics show that commercial banks’ dollar holdings have increased from $4.180 billion in January 2025 to $4.625 billion, reflecting an accumulation of foreign currency liquidity within the formal financial system.
Pakistan’s prolonged struggle with dollar shortages intensified in recent years, peaking in 2023 when the country narrowly avoided default before securing an IMF programme. Since then, the government and the State Bank have implemented measures to tighten import spending, reduce current account deficits and combat illegal currency trading. While smuggling and open-market speculation have been largely contained, the rising trend of unregulated crypto activity poses a new challenge that risks undermining ongoing stabilisation efforts.
In parallel with these developments, the government is preparing to issue new international bonds and exploring Panda Bonds in the Chinese market to diversify financing sources. The State Bank’s foreign exchange reserves currently stand at around $14.551 billion and are projected to rise to $17 billion by the end of FY26. Stronger remittance inflows have enabled the central bank to maintain reserve buffers while meeting debt obligations. Currency analysts expect that an anticipated IMF disbursement of $1.2 billion could further strengthen the country’s reserve position in the coming months.
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