Pakistan has Rs30.96tn worth money in circulation
Business
Rs22.6tn are lying with private and public banks while Rs8.4tn are with the State Bank of Pakistan
LAHORE (Dunya Investigation Cell) - The currency in circulation in the domestic economy of Pakistan stands at 27 per cent, 10pc higher than from India and 11pc from Bangladesh.
The total value of money in system is standing at Rs30.967 trillion, out of which Rs22.593 trillion are held by private and public banks. Remaining Rs8.374 trillion or 27pc of total value are present in shape of currency in circulation.
The currency in circulation is the money that is not deposited in banks. Data shared by the State Bank of Pakistan (SBP) showed total money in system stood at Rs31.530 trillion in June 2023, out of which Rs22.381 trillion were held by the private and public banks.
When the previous government came to power, there were Rs25.75 trillion in the country, of which Rs17.85 trillion in private and public banks and Rs7.91 billion were circulating in the form of cash currency.
Thus, in April 2022, 31 per cent of the money in the country was outside of the banks. Interestingly, the interest rate kept on increasing by the SBP from September 2021, one of the main reasons for the cash currency in the market. However, from September 2021 to September 2023, domestic cash currency decreased by only 4 per cent, while the monthly average rate of cash currency circulation was 29 per cent.
The SBP will announce interest rates shortly, which is expected to increase central bank interest rates by 100 to 150 basic points to curb inflation and reduce cash circulation in the market. An increase from 22 per cent to 23 per cent or 23.5 per cent is expected to be announced. It should be noted that the reason for increasing the interest rate by the SBP is to reduce the inflation in the country as well as to reduce the cash circulation.
The current policy cycle is the 16th policy cycle of the SBP, while interest rates are being increased continuously in this policy cycle. In the 16th policy cycle, the policy rate has been increased by 15 per cent (1500 basis points) from September 2021 to 22 per cent from 7 per cent till June 2022, while the interest rate has remained at 22 per cent since June 2022.
Moreover, during the current 16th policy cycle of the SBP, the rate per dollar has increased by Rs132 from Rs167 to Rs299 during the period from September 2021 to September 2023. Around 79 per cent increase in value has been recorded.
According to the SBP, in September 2021, the total amount of money in the country was Rs22.45 trillion, of which Rs15.43 trillion were in private and public banks, while Rs7.23 trillion were in the form of cash currency. Thus, 31 per cent of the total domestic currency was held outside of the banks.
However, during two years, the total money in the country has reached Rs30.97 trillion with an increase of Rs8.52 trillion, of which the money held by private and public banks is Rs22 trillion with an increase of Rs7.17 trillion reached Rs593 billion while the amount in the form of cash currency is Rs8.38 trillion with an increase of Rs1.46 billion. Thus, 27 per cent of the total domestic currency is held outside banks.
In the year 2023, if the cash currency rate of the total currency in the country is reviewed monthly, then the cash currency rate in January will be 28 per cent, February 29 per cent, March 29 per cent, April 30 per cent, May 29 per cent, June 29 per cent, July 28 per cent, August 28 per cent, while in September 27 per cent of the total domestic currency is outside the banks in the form of cash.
Similarly, if we compare inflation during the current 16th policy cycle, the month-wise inflation rate was 9 percent in September 2021, which has crossed 27 percent by August 2023.
Similarly, the monthly average rate of inflation in the country was 22 percent during this entire period.
It should be remembered that the monthly rate of inflation in the country was 31.5 per cent in February 2023, 35.4 per cent in March 2023, 36.4 per cent in April 2023, and a record 38 per cent in May 2023, after which it decreased every month.
However, on September 1, 2023, there was a fear of a new wave of inflation in the country due to the increase in the price of petrol by Rs 15 per litre and the record prices of electricity per unit.
It should be noted that on September 15, 2023, the new price of petrol per liter will be introduced by the government, in which the price of petrol per litre is likely to increase by Rs12 to Rs15.
Remember that Pakistan is ahead of India and Bangladesh in cash currency.
Around 27 per cent of the total currency in Pakistan is held outside the banks in the form of cash currency. India has a cash currency rate of 17 per cent, while Bangladesh has a cash currency rate of 16 per cent.
In these circumstances, the government and the country's economic institutions need to document the economy to reduce the cash economy and cash circulation in the country.
