Pakistan and Egypt are the latest countries to experience a currency crisis, with their currencies literally collapsing after inflation has taken off. Despite the bans, interest in cryptocurrencies is high in both countries. But they are not the only ones.
Pakistan and Egypt have a foreign exchange crisis as inflation soars and their currencies plummet – written by Trustnodes. Pakistan, with a GDP of 350 billion dollars, has only five billion dollars in foreign exchange reserves, which is barely enough to cover one month’s imports. (Countries typically set aside a reserve equal to at least 3-4 months worth of imports, but there are also several years’ worth of reserves available – ed.)
If there is no dollar, the local currency falls
Goods are piling up at ports as buyers are unable to secure the dollars needed to pay as the government tries to secure a $7 billion IMF loan. Meanwhile, inflation is 24 percent and has been stable at this value since June, despite the fact that interest rates rose from below ten percent in April to 17 percent.
However, the Pakistani Rupee (PKR) has fallen sharply, trading at 260 rupees per dollar, compared to 230 rupees a few days ago. According to some analysts, Pakistan may also follow the fate of Sri Lanka, where the lack of foreign exchange reserves recently led to insolvency.
Even if they get a billion or two dollars, things are so bad that it’s only one at most sebit will be a patch – said Abid Hasan, a former adviser to the World Bank.
Are cryptocurrencies headed for a currency crisis?
In Pakistan of 220 million people, nine million are said to hold crypto. Chainalysis estimates that in 2021, its holdings could be 20 billion dollars, which means the third place on the crypto acceptance list. (As we wrote, and sixth on the 2022 crypto adoption list – ed.) However, crypto is officially banned in Pakistan. Urdubit, an exchange that claimed to control a third of the crypto market, now says it shut down due to a ban by the State Bank of Pakistan.
Strict capital controls are in place, so it is difficult to determine the level of acceptance. But if an even bigger crisis develops, many people may turn to bitcoin, Trustnodes speculates.
Big trouble in the Nile Valley
Egypt is also in trouble, according to the government, goods worth 9.5 billion dollars were stuck in the ports in December due to the lack of dollars. About 45 percent of government revenue goes to debt service, while inflation continues to show an upward trend, rising to over 21 percent last month. Their currency, the Egyptian pound (EGP), has officially fallen by 50 percent, but the black market exchange rate shows an even worse picture.
Strict capital controls here mean that little more than $100 can be taken out of the country per month. All this is fertile ground for cryptocurrencies, but they have been officially banned here as well. A cryptocurrency enthusiast was even arrested in 2021 for promoting bitcoin on Twitter.
The Egyptian currency crisis and cryptos
Egypt has a military dictatorship, and out of a population of 109 million, it is estimated that around two million may be crypto. They usually use offshore accounts to get around the ban. Peer-to-peer traffic, on the other hand, is almost non-existent, only one bitcoin changed hands on Localbitcoins in a week. However, the Cex.io crypto exchange saw a spike in registrations in 2021, showing that Egyptians are getting around the ban.
A series of currency crises?
Some blame government mismanagement for currency crises and economic woes, but the rapid rise in US interest rates is also draining liquidity from emerging countries.
The currency crisis may also reach Tunisia, where the dinar has fallen to a record low against the dollar. Sri Lanka’s and Lebanon’s currencies have already collapsed, and Pakistan and Egypt’s are much bigger. (In addition, Turkey and Argentina have been among the deterrent examples for years – ed.)
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