The documented currency in circulation (CiC) has decreased to Rs. 8.4 trillion while total deposits with banks have jumped to over Rs. 24 trillion in just eight months, according to recent data by the State Bank of Pakistan.
Currency circulation went down by roughly Rs. 740 billion from July 2023 till March 2024. This represents a big drop in informal cash holdings and a growing preference for digital payments.
Bank deposits have surged by Rs. 1.9 trillion during July-February FY24. On a year-on-year basis, bank deposits have surged by 23 percent.
For the government, currently contending with a considerable fiscal deficit and reliant on local financing, the transition towards bank deposits represents a promising avenue to access additional domestic funds. This influx of funds could prove instrumental in effectively managing fiscal challenges.
CEO Topline Securities Mohammed Sohail said several factors contribute to this trend, including the attractive interest rates offered by banks, a concerted push for digitalization, and proactive measures by banking institutions to broaden their customer base.
He tweeted, “The new Finance Minister and their team should prioritize initiatives aimed at further reducing cash holdings, which still remain high at 26% of the money supply. This could involve incentivizing the use of banking services, promoting digital transactions, and implementing policies to encourage savings and investment”.
Higher Deposits and Lower Cash
The decline in currency in circulation in Pakistan by approximately Rs 800 billion from July 2023 to March 2024 is a positive indicator of a shift towards bank deposits in Pakistan.
This trend can be attributed to factors such as higher interest… pic.twitter.com/I1ZJe5kAV5
— Mohammed Sohail (@sohailkarachi) March 13, 2024
It is noteworthy that last year’s remarkable spike in commodity prices – such as sugar, wheat, and urea – drew huge deposits at banks this time, which has helped divert the informal cash flow towards the documented channel.
Good efforts from Caretaker PM Kakar has reap rewards what he has done should be appreciated.