Pakistan has witnessed a significant surge in cash circulation, with an increase of Rs. 212.7 billion in just one week, according to the latest data released by the State Bank of Pakistan (SBP). This surge, which occurred in the week ending September 2024, reflects a notable 2.3 percent rise in the currency in circulation, pushing the total amount to Rs. 9.09 trillion from Rs. 8.88 trillion reported as of August 30, 2024.
Despite this substantial weekly increase, the total currency in circulation remains lower compared to earlier in the fiscal year. At the end of June FY24, the currency stock stood at Rs. 9.15 trillion, indicating a decrease of Rs. 61.1 billion. This reduction highlights a broader trend of volatility in currency circulation over the recent months.
The total deposits held with local banks have reached Rs. 26.4 trillion, which represents a currency-in-circulation (CiC) to bank deposit ratio of approximately 34 percent. This ratio reflects the proportion of physical cash circulating in the economy compared to the total bank deposits, indicating a relatively high level of cash liquidity within the financial system.
In terms of broad money supply, or M2, there has been a noticeable decrease. As of September 6, 2024, M2 decreased by Rs. 940 billion, bringing the total to Rs. 35.6 trillion. This represents a decline of 2.57 percent from the Rs. 36.5 trillion recorded at the end of the previous fiscal year (June FY24). The decrease in broad money supply suggests a tightening of overall liquidity in the financial system.
The proportion of currency in circulation relative to the total money supply, or CiC as a percentage of M2, stands at 25.5 percent. This percentage indicates the share of physical cash within the broader money supply, reflecting the relative importance of cash compared to other forms of money in the economy.
Additionally, the SBP data shows a decrease in net domestic assets of the banking system by Rs. 892.4 billion year-to-date (FYTD), compared to a decrease of Rs. 411 billion during the same period a year earlier. This significant decline highlights growing challenges within the domestic financial environment.
The net foreign assets of the banking system have also experienced a decline, with a reduction of Rs. 47.8 billion so far in FY25. This decrease reflects broader issues in foreign asset holdings, potentially influenced by global economic conditions and domestic financial policies.
Overall, the recent increase in cash circulation amid a reduction in total deposits and broad money supply indicates complex dynamics in Pakistan’s financial system. The significant rise in currency in circulation could be attributed to various factors, including changes in economic activity, adjustments in monetary policy, and shifts in consumer behavior.
As Pakistan navigates these changes, monitoring currency trends, liquidity conditions, and the broader economic impacts will be crucial for policymakers and financial institutions. Understanding these shifts will help in assessing the overall health of the economy and in formulating strategies to address ongoing financial challenges.