SBP decides to issue new banknotes

KARACHI: The State Bank of Pakistan has decided to launch new currency notes with enhanced security features and new serial numbers in an attempt to prevent counterfeit notes and keep them up to date with international trends, according to SBP Governor Jameel Ahmad.

The procedural steps for this would entail getting approval from the board as per legal requirements, followed by the requisite approval from the cabinet, the central bank’s governor told reporters and analysts at the release of the monetary policy decision on Monday. He said the new banknotes design framework had begun and completion was expected by March.

Commentators welcome this move and surmise that the SBP only wants to replace existing notes with freshly designed ones, with no plans to ditch any of the denominations of notes.

“They change the design after 15 to 20 years...as per best international practice...this is what the governor said in his meeting with analysts,” said Mohammed Sohail, the CEO at Topline Securities Limited. “There is nothing to do with demonetisation I think,” Sohail added.

As per details available on its website, the SBP is the sole issuer of banknotes in the country, and one of its primary strategic objectives is to guarantee a sufficient supply of high-grade banknotes throughout the country. Additionally, it gathers dirty and unfit banknotes from the market, destroys them and replaces them with brand-new ones. “Like other central banks, the SBP issues a new series of banknotes after every 10-15 years and demonetises the earlier series with the approval of the federal government. Further, the approval for demonetisation of banknotes is granted by the cabinet on the recommendations of the SBP board in terms of Section 25 (2) of SBP Act, 1956,” it said, adding that the central bank could detect counterfeiting and ensure the integrity of banknotes in circulation by issuing new series and demonetizing outdated design banknotes.

“This scheme is going to be implemented only after the approval of the federal cabinet and helps address issues of fake currency notes and improves declaration of assets from individuals,” said Awais Ashraf, director of research at Akseer Research. “As this scheme is going to be implemented in a longer horizon of time so it may fail to reduce cash in circulation,” Ashraf said.

“In case of India, only 0.7 per cent of the bank notes of demonetised currency were junked in the exercise done at the end of 2018,” he noted. India announced withdrawing higher-value banknotes from circulation in 2016 to combat widespread corruption and fake money. Tahir Abbas, head of research at Arif Habib Limited, said although it would take time, this was a positive step that would enhance revenue collection, expand the tax base and improve economic documentation.

According to reports, the quantity of counterfeit notes found over the previous two years has stayed constant. Between 60 and 70 per cent of the detected counterfeit notes have the denominatioan of Rs 1,000. During the previous 24 months, the SBP received thousands of counterfeit notes in various denominations from law-enforcement agencies such as the Federal Investigation Agency and the police, for additional examination and appropriate action. In Pakistan, the notes with denominations of 10, 20, 50, 75, 100, 500, 1,000 and 5,000 rupees are currently accepted as legal tender.