Recent data from the State Bank of Pakistan reveals a significant shift in the country’s financial landscape, with documented currency in circulation (CiC) dropping to Rs. 8.4 trillion, while total bank deposits soar to over Rs. 24 trillion within eight months.
From July 2023 to March 2024, currency circulation witnessed a notable decline of roughly Rs. 740 billion, indicating a substantial decrease in informal cash holdings and a growing preference for digital transactions.
Conversely, bank deposits surged by Rs. 1.9 trillion during the July-February FY24 period, marking a 23 percent year-on-year increase. This trend holds promising prospects for the government, grappling with a significant fiscal deficit and relying on local financing.
CEO of Topline Securities, Mohammed Sohail, attributes this shift to various factors, including attractive interest rates offered by banks, concerted efforts towards digitalization, and proactive measures by banking institutions to expand their customer base.
Highlighting the importance of further reducing cash holdings, Sohail emphasizes the need for initiatives prioritized by the new Finance Minister and their team. These initiatives could involve incentivizing banking services, promoting digital transactions, and implementing policies to encourage savings and investment.
The decline in currency circulation coupled with the surge in bank deposits signals a positive trend towards formal financial channels in Pakistan. Notably, the spike in commodity prices last year contributed to substantial deposits at banks, redirecting informal cash flows towards documented channels.
