KARACHI: Pakistan’s currency in circulation (CIC) as a percentage of the overall money supply (M2) fell to its lowest level in eight years as of August 2024.
The ratio of CIC to broad money dropped to 24.9 per cent by the end of August, the lowest since January 2016, according to the latest data from the State Bank of Pakistan.This decline is attributed to higher interest rates, which have led to greater deposit penetration and improvement in financial inclusion.
“Contrary to common belief, currency in circulation in Pakistan, currently at Rs8.8 trillion, is decreasing,” said Mohammed Sohail the CEO of Topline Securities.“As a percentage of GDP and money supply, it is at a 10-year low, though still higher than desired,” Sohail added.
“This decline is due to high rates offered by banks, along with digitization and financial inclusion efforts, which have encouraged people to deposit more funds in banks rather than holding cash.”Deposits at banks increased by 19.1 per cent year-on-year to Rs30.6 trillion as of July 2024.
CIC as percentage of M2, a marker for cash/informal economy, has fallen, suggesting a slowdown in cash/informal economy.In Pakistan, M2 is the most widely used definition of broad money.
From the liability side, it is measured as a sum of currency in circulation; total deposits of non-government sector, including residents’ foreign currency deposits; and other deposits with the SBP, according to the information posted by the SBP on its website.And from asset side, M2 is a sum of net domestic assets and net foreign assets of the banking system (ie SBP and scheduled banks), it said.