The currency in circulation in Pakistan is over Rs9.4 trillion as of 2025 and has been hovering in this range for the last two years. Relative to broad money, currency in circulation is in the range of 26-27 per cent.
Currency in circulation can be defined as the currency notes and coins held by the public, effectively existing outside the banking system. Broad money includes currency in circulation, bank deposits, and more.
The higher incidence of currency in the economy effectively implies the existence of a large informal economy that creates its own set of challenges. Such challenges would include the existence of an economic segment that is able to avoid any kind of direct taxation while also constrained in its ability to reallocate capital to more productive export-oriented endeavours rather than service-oriented activities.
A higher incidence of cash in the economy effectively acts as a drag on growth, as currency keeps sloshing around instead of being deemed as savings in a formal financial sphere, such that it can be used for capital creation purposes.
The estimated total direct cost of cash is about Rs76bn, which increases annually
The indirect cost of cash is effectively a drag on growth and inadvertently a drag on the ability to increase revenue or economic activity from an ever-increasing segment of the economy. There are also direct costs that are incurred every year to sustain the cash economy — the fuel for that economy being the existence of tangible currency notes.
The State Bank of Pakistan, in its financial statements FY24, reported currency printing costs of Rs31.3 billion. This can act as a base number, on the basis of which we can further break down the direct cost of cash.
The paper for printing of currency notes is provided by Security Papers Limited, which is also a publicly listed company. For FY24, they reported production of 4,104 tonnes of paper for currency notes. Utilising available public data, we now know how much cost was incurred in printing currency notes and how much paper was actually used.
The dimensions and weights of currency notes in existence are also public information — because they exist in our pockets and elsewhere. Similarly, numbers regarding currency in circulation are also updated on a regular basis, providing a baseline to understand how much currency in circulation has changed.
Utilising the publicly available information detailed above, and through an AI-powered iterative process to solve multiple equations with a dozen variables, we were able to estimate the number of currency notes printed for each denomination, and what would be the approximate printing cost for each denomination.
It is estimated that 476.7 million currency notes were printed in 2024. At a more granular level, it is estimated that 90.8m notes with a denomination of Rs5,000 were printed in 2024, while 68.1m notes with a denomination of Rs1,000 were also printed. It is to be noted here again that these are estimates calculated based on publicly available information.
The availability of precise details by the Central Bank can provide further clarity regarding the same. Printing currency notes with denominations of Rs500, Rs1,000, and Rs5,000 collectively cost Rs16bn in 2024. The cost of printing currency continues to increase from Rs13bn in 2020 to more than Rs31bn in 2024.
As the primary raw material is largely import dependent, any depreciation of the Pak Rupee in economic terms inadvertently also leads to an increase in the cost of printing an additional currency note in a tangible form.
In an environment where digital transactions can not just reduce the economic cash drag but also the direct cost of printing and handling cash — it makes no sense to continue to spend substantial sums annually to print a legacy instrument in such large quantities.
The cost of cash just doesn’t stop at printing. There is a cost of handling, storing, managing, and disbursing the same. A review of the country’s largest bank’s financial statements exhibited that the cash handling and transportation cost is around Rs3.2bn.
Similar numbers were also extracted from other banks, and extrapolating them to the total deposits of the banking sector, it can be estimated that around Rs23bn is spent on cash handling and transportation annually. To keep things in context, as per the State Bank of Pakistan’s statistical bulletin, more than 236m cash withdrawal and deposit transactions were conducted in FY24 — this basically means close to 1m cash withdrawal and deposit transactions on a daily basis. The infrastructure and personnel costs required to manage such a throughput is difficult to estimate with a certain degree of accuracy.
There are more than 18,700 ATMs in the country, which are primarily used to disburse cash, exclusively in denominations of Rs500, Rs1,000, and Rs5,000. Utilising financial statements, and primary research, it can be estimated that the monthly operational cost of an ATM would be in the range of Rs 100,000.
Extrapolating the same annually would suggest an annual operational cost of Rs22bn for management ATMs or cash disbursement. There is evidence from many similar markets that as digital transactions increase, the penetration of ATMs and their usage declines, resulting in cost savings associated with the management of infrastructure.
The number of cash transactions being conducted through bank branches continues to remain flat. Similarly, we continue to print the Rs5,000 note in large volumes despite significant costs associated with the same and little utility.
There exists a case to gradually reduce the printing of large denomination currency notes and structurally move large transactions over a certain threshold through banking channels only. As the incidence of Rs5,000 note is reduced, the cost of handling cash would substantially increase, forcing such users to transition to digital transactions.
It is estimated that the total direct cost of cash is about Rs76bn, which increases annually. A target can be set to reduce the same progressively, and cut it down to half over the next five years, by doubling down on digital transactions.
The ecosystem is already in place — catalysing adoption through a carrot-and-stick approach is the only way forward, or else we may continue to spend billions for printing an instrument which actually acts as a drag on the economy.
Ammar H Khan is CEO of National Credit Guarantee Co. Ltd and assistant professor of practice at IBA.
Hasan Saeed is analyst, Research & Insights, at Karandaaz Pakistan
Published in Dawn, The Business and Finance Weekly, March 17th, 2025
