KARACHI, Nov 14: Currency in circulation increased by Rs21.8 billion last month mainly because of heavy withdrawals from the rupee accounts after the launch of US-led air strikes on Kabul on October 7.
Earlier in September currency in circulation had risen by Rs9 billion due to panic-driven withdrawals after the September 11 terrorist attack on New York and Washington. Thus the total rise recorded in currency in circulation in the last two months comes to Rs30.8 billion.
According to the State Bank statistics currency in circulation that recorded a negative growth of Rs2.6 billion between July- August this year rose to Rs6.5 billion at end September and then to Rs28.2 billion towards the end of October.
This huge increase in currency in circulation suggests people were holding rupees in cash. They could be doing this for a host of reasons. But the most important one could be the uncertainty that loomed into view in the wake of the September 11 attacks on the US soil followed by the US-led air strikes on Afghanistan.
Says SBP’s Economic Advisor Dr Mushtaq A. Khan: “Developments in Afghanistan either in the form of rupee holding by Afghans or the release of rupees for the relief efforts could justify this sharp increase in currency in circulation.”
What else justifies it is that “maybe individuals were selling dollars in favour of rupees and were keeping the rupees at their houses,” remarked Dr. Khan when contacted by Dawn over telephone.
Senior bankers said another thing raised the level of currency in circulation in the past two months. People brought in a lot of ill-gotten and undeclared money placed abroad after the central banks in the Middle East and in the Europe tightened restrictions on money laundering and the US froze bank accounts of those who were suspected of financing the terrorists.
“Most of the money thus coming in was retained in cash,” said treasurer of a state-run bank. He said the unusual increase in currency in circulation dried up the liquidly in the inter-bank market. That resulted in heavy discounting by banks in the second part of September and in the first two weeks of October and kept the overnight call rate closer to the then SBP discount rate of 12 per cent. The liquidity crunch is still far from over with the call rate still chasing closely the SBP discount rate of 10 per cent.
That currency in circulation recorded an unusual increase of Rs21.8 billion in October compared to Rs9 billion a month ago indicates that after the October 7 US attack on Kabul a lot of cash holding took place. Senior bankers say the bank branches in and around Peshawar and Quetta reported heavy withdrawals from rupee accounts last month.
They say whereas part of rupee cash holding could have been used by the relief agencies part of it must also have been used by pro-Taliban forces in Pakistan as well as by United States and UK intelligence agencies to win the support
of tribal leaders against Taliban.
FUTURE OUTLOOK:/ Senior bankers say currency in circulation may continue to increase this month with the beginning of withdrawals from bank accounts to avoid payment of Zakat on 1st of Ramazan.
They say withdrawals for financing pre-Eid consumer spending have already started and banks are reporting a continual fall in their deposit base.
Every year people take out a few billion rupees from their bank accounts to avoid deduction of Zakat on 1st of Ramazan. Individuals and organizations also take out billions of rupees for pre-Eid spending.
The amounts thus withdrawn come back into the banking system but not before a time lag of six to eight weeks.
