Sharp Decline in CIC , Causes and solutions.

Third world countries including Pakistan are still intact in Cash notes as premier tender only and keeping it as gaint in their economics. Lack of legislations , pressure from financial funds like IMF, geopolitical situations and world terrorism antiwave by FATF putting them far from digital alternatives.

What is CIC ?
CIC stands for cash in circulation printed by central bank to fullfil the need of economic market. Central Banks keep eye on this circulation and review it quarterly and then made changes accordingly.

According to quarterly report from SBP this year , A very surprised element rises that Pakistan facing visible decline in currency circulation of 10% . Pakistan keeping 7.70 trillion PKR currency circulation in market. So 70 billion cash notes decline making everyone surprised. Why it happened and what unusual going on?
There are lot of factors behind that decline but mostly three are more important.

1. Political uncertainty
2. Crypto adoption
3. Branchless banking

Let's see in detail,

Political uncertainty.
As most of poor countries suffering, Pakistan also suffering from political uncertainty since years. Clash between political parties, invasion by army , international powers influence and divided mindset made country a barren land. No government completing his tenor which damaging it in trading world. No one is ready to believe on it , no one ready to do long term agreements. Broken promises and deeds with international community causing mistrust which leading to slow economy rate and freezing work flow in private sector. No one ready to put investment ( if I have money, I am keeping only with me in fear of loosing due to continue changes in policies) and it causing CIC declining in the country. Need a strong government with mandate of people which will lead the country to prospective pathways.

Crypto adoption.
Crypto is illegal tender in Pakistan until today and finance authority has pressure from donors like IMF, from FATF on terrorism support, from developed countries on aid to stay away from crypto legalization. Another factor is our finance ministers and his team which didn't understand the potential of crypto and always think it as rubbish.
Despite the crypto is illegal tender yet , according to Kucoin report Pakistan was ranked 3rd in Asia and 6th in the world on crypto adoption in year 2022. The 2023 is much better and expectedly the ranks will go higher.
The country men owning $25 billions estimated worth in crypto. As crypto stands non countable due to illegal tender, people heavily buying the crypto by Cash ( we can't use banking channel for it ) only on P2P transactions. The cash flow going convert into crypto and Cash in circulation declining sharply.
Pakistani people ( only men , 48%of the population) age of 18-40 are keen intresed in crypto and mostly on trading. Rest holding, keeping in NFTs and doing merchanting to facilitate people of the crypto affiliate market. Exchanges like Binance, karakern and Kucoin doing business and around 10,000 crypto coins are in portfolios. Highest rating going with Bitcoin and ETH, BCH, BnB, LTC and SOL are main crypto currency. The increasing interest of people in crypto made cash market squeezed and causing decline in CIC.
The solution is to make laws for crypto, this legislation will give good tax income to the government and CIC flow will be monitored accurately and government will be able to take necessary steps on time. Crypto adoption should be there even with some restrictions, so legal banking channel will be there for transactions and the flow of cash also will be on screen.

Branchless banking.
Lack in good governance and poor monitoring on branchless banking making about factor in CIC declining. We know digital world is so smart and efficient. The online shopping and flexible tax conditions on international shipments triggered people to do shopping from international vendors. Now where is problem? The online stores like Amazon, Alibaba and Shopify putting prices in USD for the items. When we choose a product to purchase, it's worth of USD takes Equal Amount in PKR from branchless banking app , convert it into USD automatically and pays to vendor. This conversation of PKR into USD and then payout to international vendors are caused to CIC declining.
Here government should allow to create the accounts in foreign currency, costumers should convert cash into USD from banks and use it for payments. This way two things will happen, one tax of conversion seconds monitoring of cash flow.

That's all for today, like , thumb up to wow and leave comments for feedback.

Cheers,

Amjad.
Lead image taken from Pixabay.