In Pakistan, the documented currency in circulation (CiC) has fallen to Rs. 8.5 trillion, reflecting a significant decline in both informal cash holdings and the use of cash for transactions.
The cash you and I have in our wallets, closets, and, in some cases, even under or inside our mattresses or in a hidden compartment inside the ceiling, stood at 10% of the GDP as of August 2023. Cash held in banks may also be included in the CIC.
State Bank of Pakistan (SBP) data show that total currency stock, which stood at Rs. 9.148 trillion at the end of June FY23, has decreased by nearly Rs. 700 billion in the first two months of fiscal year 2023–24.
Total deposits with local banks totaled Rs. 22.3 trillion, which equals a CiC-to-bank deposit ratio of 25%, a significant decline from the reported 34 percent in March 2023.
According to trends seen in 1QFY24 thus far, CiC started declining after new budget provisions activated a standard fee on cash withdrawals by non-filers, which likely encouraged people to hoard cash in banks. CiC as a percentage of money supply (M2) is over 27 percent.
According to Topline CEO Mohammed Sohail, the high return on deposits of around 20% being offered by banks may be a contributing factor in this decline in CiC. Another factor could be a slowdown in the markets for real estate, automobiles, etc. that were used to store these funds.
