The currency in circulation (CIC) has increased to over Rs. 7 trillion in Pakistan, representing the growth in the size of the economy and the traditional use of cash among the citizens as money.
According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21 as compared to the previous level of the last financial year in which it stood at Rs. 6.7 trillion, showing a double-digit growth of 10.4 percent year-on-year.
The currency in circulation is the overall currency consisting of various denominations of banknotes being used as money in an economy for the exchange of goods and services and informal savings, excluding the financial sector.
The size of Pakistan’s economy has increased significantly, which showed the double-digit growth in currency in circulation, said Tahir Akbar, Head of Research at Arif Habib Limited. It is pertinent to mention here that Pakistan’s GDP grew by 3.94 percent, which was well above the target set for the financial year 2020-21 of 2.1 percent, and COVID-19 induced contraction of 0.47 percent in FY20.
Accordingly, the banking regulator issued currency notes in order to meet the requirements of the local economy. The banknote printing charges of SBP increased to Rs. 15.762 billion in FY21 from Rs. 13.325 billion in FY20, thereby registering an increase of 18 percent mainly due to larger volumes of printing and an increase in printing rates.
The CIC of the country stands from 28 to 30 percent viz-a-viz the volume of broad money size, he further said. This is the average percentage of CIC when Pakistan is compared with similar economies. On the other hand, the CIC percentage is less than 20 percent of the broad money in most of the developed countries, where the digitization of the economy is much higher than in Pakistan.
Besides, the currency in circulation stands at Rs. 7.4 trillion, the value of money deposits maintained by the banking system of the country stood at Rs. 19.2 trillion, which is in addition to the value of assets and investments made by the country.
Financial Inclusion and Digitization of Banking System
The higher currency in circulation also means that the size of Pakistan’s undocumented economy is huge. Besides, the cash available in the economy also causes a factor of money-led inflation.
Since the last decades, the banking regulator along with the private sector has been working aggressively towards the financial inclusion of the economy through introducing various new avenues such as branchless banking, mobile and internet banking, payment cards, payment gateway operators, POS operators, digital wallets, QR payments, etc.
The use of digital means for the transaction of money has increased tremendously, but there is a big room for improvement, which needs customers’ confidence over these tools on the one hand, whereas the literacy of electronic banking is also needed on the other hand.
A senior banker and founder of branchless banking in Pakistan, Nadeem Hussain, told ProPakistani,
Yes, the cash in circulation is increasing because the parts of our economy which are not under the tax net usually accept cash and the volumes are growing. This means the service sector especially real estate , Kiryana stores, freelancers , plumbers/dentists/electricians,
He pointed out that the country’s service sector constitutes 50 percent of the economy and the bulk of it is cash-based.
In FY20, the volume of paper-based transactions within the banking sector stood at Rs. 151 billion as compared to transaction volume through electronic or digital banking standing at Rs.86 billion. The electronic banking transactions registered year-on-year growth of 31.1 percent, which implies an increase in the adoption of digital means for payments.
This growth was spurred by major uptake in mobile banking (133.6 percent increase in transactions volume) and internet banking (65.1 percent increase in transactions volume), whereas transactions against paper-based instruments showed a decline of 6.8 percent by volume and a rise of 15.6 percent by value.
These trends point toward healthy growth in fostering a more digitally integrated economy in years to come.