Pakistan and Egypt are the latest countries to develop a monetary crisis as their currencies plunge while inflation jumps.
Pakistan, a country with a GDP of $350 billion, is running out of money with it having only $5 billion in foreign reserves, barely enough to cover one month of imports.
Goods are piling up in ports as buyers are unable to secure the dollars to pay for them with the government trying to secure an IMF loan of $7 billion.
That’s while inflation runs at 24%, holding steady around that rate since June despite interest rates increasing to 17% from less than 10% in April.
GDP has stagnated in dollar terms, but growth of 4% is shown. The Pakistani rupee (PKR) however has plunged:
You need 260 rupees now for a dollar, down from 230 rupees just on Wednesday, with some analysts suggesting Pakistan is at risk of following Sri Lanka where a shortage in foreign reserves led to a default.
“Every day matters now. It’s simply not clear what the way out is,” said Abid Hasan, a former adviser to the World Bank. “Even if they get a billion [dollars] or two to roll over . . . things are so bad that it’s going to be just a Band-Aid at best.”
There are claims that as many as 9 million hold crypto in Pakistan, a country of 220 million. An estimate by Chainalysis put their volumes at $20 billion for 2021, ranking it third globally for crypto adoption.
Crypto however has been blockaded in Pakistan. Urdubit, an exchange that claimed to have a third of the crypto market, now says it has shut down due to the State Bank of Pakistan prohibition on dealing with virtual currencies.
There are strict capital controls with it now difficult to ascertain the level of adoption, but if a full on crisis develops, many there might turn to bitcoin.
Egypt is also in trouble. $9.5bn worth of goods were stuck at ports in December, the government announced, due to the shortage of dollars.
Some 45% of government revenue now goes towards debt servicing, while inflation continues to be in an uptrend, rising above 21% last month.
Their currency, the Egyptian Pound (EGP), has plunged 50% with the blackmarket rate being even higher.
Strict capital controls means you can barely withdraw more than $100 a month outside of the country.
All that makes it a fertile ground for crypto, but it has been banned here too at a government level. A cryptonian was even arrested in 2021 for promoting bitcoin on social media, that is for a tweet.
Egypt is under a military dictatorship with a GDP of $404 billion. Its 109 million population however is thought to have about 2 million cryptonians.
They tend to use offshore accounts to bypass the prohibition with Ahmed Mostafa, a computer science graduate from the American University in Cairo, stating: “The idea of a decentralized currency and investing in it is a bit like investing in the future.”
Peer to peer volumes appear to be almost none existent by contrast, with just one bitcoin passing hands in a whole week on Localbitcoins.
“P2P is also a good substitute for those living local looking to invest, but they can’t really profit from it here as long as they’re in Egypt,” says Ahmed.
Yet in 2021 signups on the crypto exchange CEX.IO spiked, showing Egyptians are getting around the prohibition.
That might even be more the case now with the risk of a developing currency crisis which includes other countries like Tunisia that has seen its dinar fall to record lows against the dollar.
The collapse of Sri Lanka and Lebanon are pointed out as regional examples, with both Pakistan and Egypt being far bigger.
Some blame their troubles on government mismanagement, but the fast hike of interest rates in US might be sucking out liquidity.
This dollar shortage could lead to a full on crisis, with bitcoin being one of the very few dollar proxy that is globally accessible.
It was sort of thriving in Pakistan prior to the ban, with mining in particular seeing an uptake which would have been a good source of hard money.
Their bias and short-sightedness however might limit the safety cushion and escape valve for their vast population.
Only those that have been brave enough to ignore these bans might now have some way to weather the winds as their governments start being at the risk of going broke.