Pakistan holds Rs30.96 trillion in circulation, higher than
India and Bangladesh
As of now, the total amount of money in circulation within
Pakistan's domestic economy stands at a staggering Rs30.967 trillion. Out of
this sum, Rs22.593 trillion is held by both private and public banks, while the
remaining Rs8.374 trillion, comprising 27 percent of the total value, exists in
the form of currency in circulation.
Currency in circulation represents money that is not deposited
in banks. According to data provided by the State Bank of Pakistan (SBP), the
total money in the system amounted to Rs31.530 trillion in June 2023, with
Rs22.381 trillion being held by private and public banks.
To provide context, when the previous government assumed power,
Pakistan had Rs25.75 trillion in circulation, with Rs17.85 trillion held by
private and public banks and Rs7.91 billion circulating as cash currency.
Consequently, as of April 2022, a substantial 31 percent of the nation's money
existed outside the banking system. Notably, the State Bank of Pakistan had
been consistently raising interest rates since September 2021, which
contributed to the availability of cash currency in the market. However,
between September 2021 and September 2023, domestic cash currency decreased by
only 4 percent, despite an average monthly cash currency circulation rate of 29
percent.
It is expected that the SBP will soon announce an increase in
central bank interest rates by 100 to 150 basis points to combat inflation and
reduce cash circulation in the market, potentially raising it from 22 percent
to 23 percent or 23.5 percent. This move aims to reduce inflation and cash
circulation in the country.
This current policy cycle marks the 16th policy cycle of the
SBP, characterized by continuous interest rate hikes. In this 16th policy
cycle, the policy rate has surged by 15 percent (1500 basis points), increasing
from 7 percent in September 2021 to 22 percent by June 2022, where it has
remained since.
Moreover, during this 16th policy cycle, the exchange rate
against the dollar has risen by Rs132, from Rs167 to Rs299, between September
2021 and September 2023, representing a 79 percent increase in value.
According to the SBP, in September 2021, the total money in the
country was Rs22.45 trillion, with Rs15.43 trillion in private and public
banks, and Rs7.23 trillion as cash currency, indicating that 31 percent of the
domestic currency was held outside banks. In just two years, the total money in
the country has reached Rs30.97 trillion, with an increase of Rs8.52 trillion.
Private and public banks now hold Rs22 trillion, an increase of Rs7.17
trillion, while the amount in the form of cash currency is Rs8.38 trillion,
reflecting an increase of Rs1.46 billion. Consequently, 27 percent of the total
domestic currency is held outside banks.
When reviewing the cash currency rate of the total currency in
Pakistan monthly for the year 2023, the cash currency rate was 28 percent in
January, 29 percent in February, 29 percent in March, 30 percent in April, 29
percent in May, 29 percent in June, 28 percent in July, 28 percent in August,
and 27 percent in September, indicating a gradual decline in cash circulation.
Regarding inflation during the current 16th policy cycle, the
month-wise inflation rate was 9 percent in September 2021 and surged to 27
percent by August 2023. The monthly average inflation rate during this period
was 22 percent.
It's essential to note that monthly inflation in Pakistan
reached 31.5 percent in February 2023, 35.4 percent in March 2023, 36.4 percent
in April 2023, and a record 38 percent in May 2023, after which it began to
decrease monthly. However, on September 1, 2023, concerns emerged about a new
wave of inflation in the country due to a Rs15 per liter increase in petrol
prices and record electricity prices per unit.
Furthermore, on September 15, 2023, the government is set to
introduce a new petrol price per liter, expected to increase by Rs12 to Rs15.
In this context, Pakistan maintains a higher rate of cash
currency in circulation compared to India and Bangladesh, with 27 percent of
the total currency in Pakistan held outside the banking system. India has a
cash currency rate of 17 percent, while Bangladesh's cash currency rate stands
at 16 percent.
In light of these circumstances, the government and the
country's economic institutions should prioritize efforts to document the
economy and reduce cash circulation to promote a healthier economic
environment.
Source: https://dunyanews.tv/