Pakistan's currency in circulation hits near decade low

September 16, 2024 (MLN): The Currency in Circulation (CiC) in Pakistan has dropped to a near 10-year low level as a percentage of Gross domestic product (GDP) at current prices.

Meanwhile, as a proportion of Broad Money (M2), CIC has fallen to near a 9-year low.

According to provisional accounts on Monetary Aggregates for the week, maintained by the State Bank of Pakistan (SBP), CIC stood at Rs8.88 trillion as of August 30, 2024, down by Rs273.82bn in the ongoing fiscal year.

Although these declining figures suggest a particular trend, the current amount still stands significantly higher compared to its 10-year average of Rs5.81tr.

It is worth noting that cash in circulation peaked at an all-time high of Rs9.4tr in June 2024, partly due to the Eid-ul-Adha festive during that period. Since then, it has decreased significantly by Rs517.53bn due to seasonal shifts as seen in the past.

As a proportion of M2, the most widely used measure of money supply in Pakistan, CIC has dropped to 24.93%, a level last seen back in 2016 start.

Moreover, in percentage terms of GDP, CIC clocked in at 8.37%, marking its lowest point since FY15.

Potential reasons for this shift apart from the seasonal factor include an increased willingness among the public to save their money in banks and earn a return on it.

For reference, the total deposits held by scheduled banks have moved up by 17.6% YoY to Rs30.71 trillion as of August 2024.

Furthermore, due to innovative payment methods through technological advancements, consumers and businesses are increasingly embracing digital payment methods, thus contributing to a shift toward a more digital payment ecosystem in the country.

During the third quarter of FY24, digital transactions (including ATM cash withdrawals) accounted for 83% of 844 million total retail payments processed by Banks and Electronic Money Institutions (EMIs), while the remaining 17% were Over-the-Counter (OTC) transactions at banks’ branches.

Raast continued to emerge as a major driver of growth in digital payments, thus increasing accessibility, efficiency, and security of transactions in the country.

In August, the government also launched, Buna-Rast, the first cross-border real-time payment system to enable migrants to transfer funds transparently and efficiently using modern technology.

Hence the significant efforts and steps taken by the government and the central bank to to transition Pakistan towards a more digital economy may have played a role during the assessment period.

Another key factor supporting the drop in currency circulating in the economy is the rising concerns about persistent crackdowns launched by the government on informal transactions by hoarders, which may be driving liquidity into formal channels.

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