The recent Pakistan-El Salvador Bitcoin deal exemplifies how the adoption of cryptocurrency can allow emerging economies to circumvent mechanisms of traditional multilateral oversight, and thus represents a potential challenge to the wider architecture of global financial governance. The unprecedented agreement between these two countries symbolizes a departure from standard bilateral engagement and marks the emergence of what some have termed “Biplomacy,” or the use of Bitcoin advocacy in international relations. In fact, the meeting between El Salvador’s President Nayib Bukele and Pakistan’s special assistant on cryptocurrency and blockchain Bilal Bin Saqib constitutes the first official diplomatic contact between the nations to date, resulting in the creation of a formal channel for knowledge exchange on Bitcoin-focused initiatives with implications that extend beyond this sphere alone.

El Salvador’s Bitcoin Office will serve as a model from which Pakistan can draw inspiration when it comes to cryptocurrency management and the implementation of state-level digital asset strategies. The formal collaboration between El Salvador’s Bitcoin Office and the Pakistan Crypto Council establishes institutional frameworks for “bilateral collaboration in areas such as public sector adoption, blockchain-based financial inclusion, and policy design for emerging economies.” As part of the agreement, Pakistan is planning to deploy technical delegations to El Salvador to explore pilot projects leveraging blockchain technology for government payments, study the setup of El Salvador’s Bitcoin trust, and examine Bukele’s tax policies on Bitcoin gains.

Pakistan’s current pivot towards cryptocurrency marks a significant shift from its previous stance on the matter. As recently as 2018, the State Bank of Pakistan declared that digital currencies were not legal tender and prohibited exchange companies from facilitating cryptocurrency transactions. Yet as part of a substantial policy reversal, Pakistan established the Pakistan Virtual Assets Regulatory Authority in July of this year. This move, alongside the creation of the Pakistan Crypto Council, of which Bin Saqib is CEO, indicates a degree of high-level political commitment to crypto adoption. Globally, Pakistan ranks eighth in cryptocurrency adoption; approximately 20 million of its citizens hold digital currencies worth between $20-25 billion.

In another move demonstrating the seriousness of Islamabad’s intent surrounding such endeavors, Bin Saqib, Pakistan’s Finance Minister Muhammad Aurangzeb, and Bitcoin advocate Michael Saylor, whose firm MicroStrategy maintains Bitcoin reserves exceeding $62 billion, held high-profile discussions in June regarding how Pakistan can use crypto to build financial resilience. The participation of such external actors in facilitating sovereign cryptocurrency adoption sheds light on the complex ecosystem shaping these initiatives. Private sector partners’ involvement obviously introduces concerning dependencies that make profit a key driving motivator, which means a weakening of effective governance and distortion of development priorities.

Pakistan’s nod to President Donald Trump in its Bitcoin strategies provides insight into some of the geopolitical aspects of this push. Two months ago, an agreement was signed between the Pakistan Crypto Council and the Trump family’s World Liberty Financial to accelerate blockchain adoption in Pakistan, in what appears to be a gesture designed as yet another exercise in strategic positioning to curry favor with the U.S. president. This comes within the context of World Liberty Financial co-founder Zach Witkoff, the son of Trump’s Special Envoy to the Middle East Steve Witkoff, securing direct access to high-ranking officials in Pakistan including army chief Asim Munir and Prime Minister Shehbaz Sharif in April, which clearly raises major red flags surrounding conflicts of interest.

The collaboration between Pakistan and El Salvador emerges at a critical juncture when both states operate under International Monetary Fund (IMF) programs while at the same time pursuing cryptocurrency strategies that directly contravene IMF guidance. Having narrowly averted default in 2023, Pakistan faces steep financing requirements, with the IMF estimating the country will need more than $100 billion in external funding through 2029. Pakistan’s $7 billion IMF agreement runs through 2027, and though the IMF restricts state-level digital asset purchases, Islamabad has allocated 2,000 megawatts of surplus electricity for Bitcoin mining and announced plans to create a Strategic Bitcoin Reserve. El Salvador, meanwhile, despite receiving its own pressure from the IMF to stop using public funds for Bitcoin purchases, nevertheless continues expanding its publicly disclosed reserve of over 6,200 BTC valued at approximately $745 million.

Such parallel defiance in the face of the multilateral financial institution signals the development of an effort to establish alternative monetary frameworks that fall outside traditional regulatory structures. In formalizing their collaboration through “Biplomacy,” Pakistan and El Salvador have thus managed to establish a precedent that could potentially foster alternative frameworks for economic cooperation that allow developing economies to assert financial independence as well as bypass and reduce reliance on traditionally Western-dominated institutions. The two countries’ rejection of IMF guidance reflects a shared resistance to multilateral financial authority that mirrors wider geopolitical trends toward multipolarity and diminishing Western influence in global economic structures. A growing pattern of cryptocurrency adoption by sovereign states could therefore in theory ultimately erode the dollar-dominated international monetary system and reduce IMF influence over member countries’ fiscal policies.

Although this may increase autonomy for such emerging players, it also risks weakening global governance structures. Corruption concerns and illicit finance risks linked to government cryptocurrency adoption in countries with weak institutional oversight may pose threats to both domestic stability and international financial security. The fact that Bitcoin is pseudonymous in nature, along with Pakistan’s history of governance issues in particular, could open opportunities for money laundering and tax evasion. Due to limited regulatory capacity, for its part, El Salvador already struggles to monitor crypto flows effectively. In fact, the Central American nation’s crypto experiments writ large have clearly been unsuccessful. The notion that Pakistan is looking to Bukele as a model for crypto integration at all therefore becomes quite ironic.

El Salvador’s decision to designate Bitcoin as legal tender and its continued defiance of pressure from the IMF positions Bukele’s policy as an example for other emerging economies, like Pakistan, to follow. However, whether this partnership will lead to eventual success remains uncertain. Implementation hurdles including limited institutional capacity and regulatory weaknesses may preclude effective sovereign cryptocurrency adoption for both nations.