SBP reports massive drop in currency circulation

WEB DESK: In a recent report released by the State Bank of Pakistan (SBP), it has been revealed that the currency in circulation within the Pakistani economy has experienced a notable decline.

According to provisional accounts on Monetary Aggregates for the week ending January 26, 2024, the currency in circulation fell by Rs89.96 billion WoW to Rs8.51 trillion.

During the current fiscal year, the currency in circulation has seen a substantial decrease, amounting to Rs634.67 billion when compared to the figure recorded at the end of June 2023, which stood at Rs9.15 trillion.

The widely used measure of money supply in Pakistan, Broad Money (M2), has also undergone changes. It dropped by Rs23.04 billion WoW to Rs31.92 trillion as of January 26, 2024.

However, in comparison to June 2023, M2 has experienced an increase of Rs401.15 billion, compared to the Rs31.52 trillion recorded at the end of the last fiscal year.

The percentage of currency in circulation as a component of M2 stood at 26.67 per cent, showcasing a decrease from 26.93 per cent a week earlier and a significant drop from 29.02 per cent in June 2023.

Additionally, total deposits held with banks recorded a notable increase, reaching Rs23.3 trillion. This marks an increase of Rs65.04 billion WoW and a substantial increase of Rs1.03 trillion FYTD.

It is important to note that these deposits exclude inter-bank deposits, deposits of governments, and foreign constituents.

The currency in circulation represents the combined balance of banknotes and coins held by both the general public and financial institutions. M2, on the other hand, encompasses a broader definition of money supply and is widely used in Pakistan.

It includes currency in circulation, total deposits of the non-government sector, including residents’ foreign currency deposits, and other deposits with the SBP.

From a liability perspective, M2 is measured as the sum of currency in circulation, total deposits of the non-government sector, and other deposits with the SBP.

From an asset perspective, M2 is the sum of net domestic assets and net foreign assets of the banking system, which includes the SBP and scheduled banks.

These developments in currency circulation and money supply indicate noteworthy trends in the economic landscape of Pakistan, requiring close attention from analysts and policymakers alike.

Read next: Pakistan retires Rs84.34 billion debt