Author of the opinion: Andrei Grachev, Managing Partner at DWF Labs

The role of Bitcoin in sovereign finance is no longer a hypothesis.

As nation-states reassess their reserve strategies amid inflation, sanctions, and dollar volatility, cryptocurrencies, particularly Bitcoin and stablecoins, are becoming a neutral, programmable asset class with sovereign-level utility.

The role of cryptocurrencies for retail users can similarly be applied at the corporate and institutional levels, where forward-thinking companies can add them to their balance sheets and even use assets like BTC and stablecoins to settle B2B transactions. Blockchain does not discriminate; it is equally suited to benefit businesses as it is for individual users.

Let’s examine cryptocurrencies at the national level. Do they have the capacity to serve governments and national economies as faithfully as they do for institutions and retail? While the sample size for such an assessment is currently small—El Salvador, Bhutan, and a few other countries—there is increasing evidence that cryptocurrencies can benefit emerging economies, especially as several developing countries begin to discover them.

Pakistan, with a population of over 240 million and a GDP exceeding $1.25 trillion, has a developed economic system and is not a banana republic. It is a country with bright prospects, strong growth, and low public debt. However, like several other South Asian countries, it suffers from high CPI inflation exceeding 10%. In many ways, it shares numerous similarities with a country located on a distant continent, a country whose name has rarely been mentioned alongside Pakistan until now: El Salvador.

Now these two countries are destined to be mentioned together, as Pakistan's cryptocurrency committee has been established to create a Strategic Bitcoin Reserve (SBR). This is not merely a playful endeavor— as a statement of intent, it has the backing and support of advocates like Michael Saylor.

For a country still viewed as highly conservative in many areas, this is a bold venture that is sure to highlight the benefits that cryptocurrencies can bring to emerging economies. Spoiler alert: the potential advantages go far beyond "digital up" investments. If applied wisely, countries that prudently reserve crypto assets have the capacity to catalyze economic growth by bypassing the constraints of traditional finance.

While the U.S. proposal to establish an SBR is still in the works, other countries are considering actions regarding Bitcoin's limited supply. Brazil and Japan are reportedly contemplating Bitcoin reserves. Meanwhile, Russia is also believed to be evaluating cases of significant Bitcoin accumulation.

The commonality among all these countries—including Pakistan—is their outsider status. They do not have the dollar—the de facto global fiat currency—as their national currency and are often affected by high inflation. Strategic crypto reserves have the ability to immunize against domestic turmoil, alleviating this situation and providing a foundation for long-term economic growth. This is similar to the practice of citizens in high-inflation countries like Argentina converting their savings into cryptocurrencies.

The geopolitical dynamics surrounding sovereign cryptocurrency adoption resemble a coordinated game. First movers may gain asymmetric benefits: selective trade, regulatory arbitrage, and capital inflows. Latecomers face the risk of entering a crowded field with diminished narrative control. This is a game theory on a global scale. While establishing an SBR has the potential to benefit any country that embraces it, it is particularly advantageous for emerging economies.

Emerging nations with cryptocurrencies like BTC and stablecoins can use these assets to overcome the limitations of traditional financial systems, especially in international trade. Many countries face restrictive currency controls or international sanctions that limit their access to global financial systems like SWIFT.

Crypto-native tools, particularly dollar-backed stablecoins and BTC, provide tactical trade routes for sanctioned or currency-restricted markets. While they cannot replace traditional reserves, they introduce programmable liquidity into the national macro toolkit.

Small countries like Bhutan, which hold significant amounts of Bitcoin, can use cryptocurrencies to settle trade agreements with regional partners—especially once more countries are willing to hold it. By holding blue-chip cryptocurrencies like Bitcoin, governments can also hedge against currency devaluation, guard against local currency volatility, and attract foreign investment.

Crypto-friendly policies can also position emerging economies as hubs for blockchain innovation and tourism. El Salvador's adoption of Bitcoin as legal tender has garnered global attention, encouraging crypto businesses and tourists to visit and invest. Similarly, Pakistan's strategic Bitcoin reserve could signal to investors that the country is open to innovative financial technologies, thereby increasing foreign investment. Even modest measures have the potential to stimulate economic growth.

Many emerging economies have large unbanked populations with limited access to traditional banking services. Cryptocurrencies accessible via smartphones can bridge this gap. Governments can distribute digital wallets to citizens, enabling them to participate in the global economy. Stablecoin-based remittances allow overseas expatriate communities to send money home instantly, boosting local economies. This approach aligns with Pakistan's goal of modernizing its financial infrastructure to reduce poverty and increase economic activity.

Integrating cryptocurrencies into national strategies enables emerging nations to leapfrog outdated financial systems and build a digital economy. Over time, this will position emerging economies as leaders in the global digital economy, attracting tech talent and investment. Overall, the rationale for developing countries to create crypto reserves, or at least adopt crypto-friendly policies, is compelling.

This concept is not foolproof. The volatility of cryptocurrencies necessitates careful risk management, and allocating public funds to purchase digital assets does not guarantee economic growth. Such policies need to be implemented wisely and gradually, as part of a broader strategy that benefits both the street-level populace and policymakers in the towers.

By holding and strategically using cryptocurrencies, emerging economies can bypass the constraints of traditional finance, including being excluded from global markets. By leveraging Bitcoin's deflationary characteristics and deep liquidity, these countries can diversify their national reserves and create revenue streams through strategic sell-offs during market cycle peaks.

Whichever country first perfects its national cryptocurrency strategy will enhance its economy and trigger an international FOMO game. The stakes are high, but if done right, the upside is limitless.

Author of the opinion: Andrei Grachev, Managing Partner at DWF Labs.

Related: Reports indicate that South Korea's financial regulators will introduce a stablecoin bill in October.

This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original article: Opinion: Cryptocurrencies Can Help Emerging Economies Bypass Traditional Financial Constraints

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