Pakistan has suffered a heavy loss of nearly $600 million due to illegal cryptocurrency transactions, which has sharply reduced the flow of dollars in the banking system. People are buying dollars from exchange companies and illegally investing them in cryptocurrencies.

Reports indicate that dollar sales by exchange companies to banks fell from $4 billion in the first ten months of last year to $3 billion during the same period this year. Malik Bostan, Chairman of the Exchange Companies Association, said most of the missing dollars were invested in cryptocurrencies.

Individuals buy dollars from exchange companies, deposit them into their foreign currency (FCY) accounts, and then withdraw the funds to purchase cryptocurrencies through illegal channels.

Recently, the State Bank of Pakistan instructed banks and exchange companies not to provide cash dollars to customers. Instead, funds must be transferred directly into the customer’s FCY account. However, even with this measure, money is still being withdrawn from FCY accounts and invested in cryptocurrencies.

Pakistan has faced a severe dollar shortage for several years. Although restrictions were imposed after the IMF bailout, this new trend of cryptocurrency investment could undermine policy efforts. Currently, the State Bank’s foreign exchange reserves stand at approximately $14.551 billion.