In a recent report issued by the State Bank of Pakistan (SBP), it was revealed that the currency in circulation in the Pakistani economy has seen a significant decline.
Currency in circulation fell by Rs 89.96 billion WoW to Rs 8.51 trillion for the week ending January 26, 2024, according to preliminary accounts on currency aggregates.
During the current fiscal year, the currency in circulation has seen a substantial decline of Rs 634.67 billion compared to the value recorded at the end of June 2023 which was Rs 9.15 trillion.
Pakistan’s widely used measure of money supply, Broad Money (M2), has also undergone a change. As of January 26, 2024, WoW fell by Rs 23.04 billion to Rs 31.92 trillion.
However, compared to June 2023, M2 saw an increase of Rs 401.15 billion compared to Rs 31.52 trillion recorded at the end of the last fiscal year.
The percentage of money in circulation as part of M2 was 26.67 percent, down from 26.93 percent a week earlier and down significantly from 29.02 percent in June 2023.
Additionally, total deposits held with banks saw a significant increase to Rs 23.3 trillion. This translates to an increase of Rs 65.04 billion WoW and a substantial increase of Rs 1.03 trillion FYTD.
It is important to note that these deposits do not include interbank deposits, government deposits and foreign components.
Currency in circulation represents the combined balance of notes and coins held by both the general public and financial institutions. M2, on the other hand, includes a broader definition of money supply and is widely used in Pakistan.
It includes currency, total deposits of the non-government sector, including foreign currency deposits of residents, and other deposits with the SBP.
From the perspective of liabilities, M2 is measured as the sum of currency in circulation, total deposits of the non-government sector and other deposits with the SBP.
In terms of assets, 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 monetary circulation and money supply indicate remarkable trends in Pakistan’s economic environment that require increased attention from analysts and policy makers alike.
