Introduction to Pakistan’s Crypto Conundrum
Pakistan, a rustic stricken by chronic blackouts, a collapsing grid, and a staggering $7 billion energy import bill, has set its sights on becoming South Asia’s crypto hub. This move has raised eyebrows, given the country’s history of wavering between banning and legalizing cryptocurrencies. The government has established the Pakistan Crypto Council (PCC), a regulatory body tasked with overseeing and promoting digital assets. In a surprising turn of events, the PCC has signed an agreement with World Liberty Financial (WLF), a cryptocurrency company with reported ties to the family of former US President Donald Trump.
The Energy Conundrum
The PCC claims that this move goals to mobilize Pakistan’s tech-savvy youth and switch the country’s "energy surplus" into an asset. However, this raises serious questions on the country’s energy infrastructure. Pakistan’s grid is notoriously unreliable, and feeding energy-intensive Bitcoin operations could deepen load-shedding for households and industries, exacerbating a crisis that already affects thousands and thousands. The country’s energy shortfall, which reached 6,000 megawatts in October 2023, is a stark reminder of the challenges that lie ahead.
An Unreliable Grid
Despite having a surplus generation capability, Pakistan’s transmission and distribution infrastructure is outdated, resulting in high line losses and a mismatch between electricity costs and revenue. This creates a delivery deficit, even when capability exists. The idea of diverting surplus energy to power crypto mining farms is problematic, because it could worsen the present crisis. Furthermore, Pakistan’s track record in renewable energy is poor, with only 7% of its installed capability coming from renewable sources.
The Risk of Illicit Transactions
The use of cryptocurrencies in Pakistan also raises concerns about illicit transactions and terrorism financing. The country has repeatedly come under scrutiny for its financing practices, and the anonymity of cryptocurrencies makes them ideal for bypassing traditional financial oversight mechanisms. The US Department of Justice has seized cryptocurrency assets tied to terrorism financing, and other countries have expressed concerns over the usage of crypto in money laundering and illicit cross-border transactions.
A New Opaque Layer
The emergence of cryptocurrencies has introduced a brand new layer of opacity in financial transactions, making it difficult to watch and forestall illicit financial flows. Pakistan’s financial opacity, coupled with its history of being greylisted by the Financial Action Task Force (FATF), raises uncomfortable questions on the potential misuse of cryptocurrencies. The allocation of funds to UN-designated global terrorist Masood Azhar is a stark reminder of the risks involved.
Conclusion
In conclusion, Pakistan’s decision to embrace cryptocurrencies without resolving its foundational vulnerabilities in energy infrastructure and financial governance is a dangerous move. The country’s unreliable grid, poor track record in renewable energy, and history of illicit transactions make it difficult to navigate the complexities of cryptocurrencies. As India has exercised caution in legalizing cryptocurrencies, Pakistan would do well to tread fastidiously and address its underlying issues before embracing digital currencies. The consequences of leaping before looking might be catastrophic, and it is important to prioritize the country’s economic and energy needs before courting a crisis.
