As of August 2023, the CiC —the cash you and I have in our wallets, in our closets, and perhaps even under or inside our mattresses or in a secret compartment inside the ceiling in some cases—stood at 10 percent of the GDP. The CIC may also include cash with banks.
According to data by the State Bank of Pakistan (SBP), CiC has dropped by nearly Rs. 700 billion in the first two months of fiscal year 2023-24, a big decrease from Rs. 9.148 trillion in total currency stock at end-June FY23.
Meanwhile, total deposits with local banks clocked in at Rs. 22.3 trillion, representing a CiC-to-bank deposit ratio of 25 percent, a big decrease from 34 percent reported in March 2023.
CiC as a percentage of Money Supply (M2) is at over 27 percent, and according to trends witnessed in 1QFY24 so far, CiC started falling after new Budget provisions activated a standard fee on cash withdrawals by non-filers, which probably drove people to hoard cash in banks.
According to Topline CEO Mohammed Sohail, a possible reason for this fall in CiC could be the high Return on Deposits of around 20 percent being offered by banks. Another reason could be a slowdown in the property market, auto ON market, etc. that was used to park such funds.
He said CiC is still high at 28 percent of Money Supply. Cash holding has grown at a much faster pace than money supply and GDP and is a matter of concern. “This so-called informal economy and undeclared wealth for tax avoidance, corruption, or whatever reason needs to be brought in the formal sector,” he added.
Despite the current economic turmoil, large transactions are still conducted in cash. More money outside banking channels offers a large possibility for this easily accessible cash to be utilized in illegal hawala-hundi markets and money laundering. The Afghan currency market hoarding and clearing deals in PKR is a prime example.
The real estate sector continues to be a big financial drain despite the slump since last year’s flash floods, particularly when the market lending rates are extortionate. Last week, the cut-off yields for treasury bills soared as high as 25 percent, indicating that banks have increased the cost of lending (cut-off yield) to pro-inflationary levels.
For individuals with huge cash holdings, this is a golden opportunity for fixing their assets in exchange for pristine monthly returns. This would further document CiC and bring cash into the banking system.
Source: Pro Pakistani