It seems that Pakistan is following India’s footsteps to curb the circulation of black money and corruption in the country. A few weeks after India announced its decision to ban high-value bank notes, the Senate on Monday passed a resolution to withdraw high denomination PKR 5,000 currency notes from circulation.
The resolution submitted by the Senator Osman Saifullah Khan of Pakistan People Party (PPP), was strongly opposed by many members of the government as they fear that the move to void high currency notes could lead the nation towards financial crisis. Many analysts believe withdrawing of such a big amount of notes from the struggling economy might cause financial hurdles in coming future and people might prefer foreign currency over Pakistani rupee. According to the official figures presented in the Senate, out of 3.431 trillion notes in circulation as of August this year, 30% are 5,000 rupee notes
On the other hand, Osman Saifullah Khan proposed that the State bank of Pakistan (SBP) should immediately stop printing new 5,000 rupee notes and then phase out the existing notes in circulation over the next three months. In addition, he said that if Pakistan made the move to void its higher currency notes, it would do better than its neighboring country. “I’m absolutely not recommending that we follow the steps taken in India. If this proposal is followed, we can demonstrate to them how to get the demonetization process right,” Sen. Khan said in the Senate.
Nevertheless, it is important to note that the Government of Pakistan (GoP) failed multiple times to increase the size of its documented economy, even after using tax amnesty schemes and punitive measures like imposing fines on banking transactions for non-filers. Therefore, officials believe that denomination of high value notes are necessary to counter corruption and terrorism, which rely on the financing via informal banking and cash channels.
In any case, the Senate’s resolution is not binding on the government, however, Senator Osman Saifullah Khan said he would pursue this matter until the Government took any action.