ISLAMABAD: The federal government announced on Monday that it would not withdraw from circulation the Rs5,000 currency note despite having a strong case to discontinue the high-denomination note due to its massive use by property speculators, smugglers and in other illicit transactions.
“The government has neither taken such a decision nor is there any justification for the discontinuation of Rs5,000 note,” said the Ministry of Finance in a statement issued after holding an internal meeting.
It claimed that current value of the Rs5,000 note, which was of highest value in Pakistan, was significantly smaller compared to that of major currencies such as the $100 bill, 200 euros and 50 pound sterling.
“During 2015-16, only 17% of the notes printed were of Rs5,000 denomination,” it added.
The statement came days after the Senate passed a resolution seeking the withdrawal of Rs5,000 banknote in a phased manner.
The finance ministry said given the continuing use of cash in transactions, the government believed that discontinuation of the Rs5,000 note would adversely affect the efficiency of exchange in the business and be a source of major discomfort and anxiety for the people.
As such, the very notion of cancellation of such a convenience in transactions was preposterous and unequivocally denied, it added.
However, a recent article written in Dawn stated that the Rs5,000 note was not used in these cash operations.
Citing a research conducted by the State Bank of Pakistan (SBP) many years ago, the author wrote that the Rs5,000 note did not even exhibit any seasonality in its circulation. The same research showed that once the note entered into circulation, it rarely returned to the banking system.
Property speculators, stockbrokers, smugglers and many outright illicit transactions use the high-denomination cash, he added.
However, the finance ministry argued that it was pursuing the National Financial Inclusion Strategy in association with the SBP whereby digital transactions and branchless banking were being brought on the doorstep of people that would significantly reduce dependence on the currency.
“This is the way to move forward for promoting documentation in the economy rather than by cancelling any existing denomination,” it added. Contrary to the government’s claim, the currency in circulation is on the increase due to Federal Board of Revenue’s move to charge 0.4% withholding tax on the banking transactions carried out by non-filers of income tax returns.
Last year, SBP Deputy Governor Saeed Ahmad informed the Public Accounts Committee that the central bank had been approached by certain quarters to discontinue the Rs5,000-denomination currency note. He said due to longevity and least chance of forgery, there was a need to study whether to continue or discontinue the Rs5,000 note.
The Senate Standing Committee on Finance would deliberate on the resolution passed by the Senate and call representatives of the Ministry of Finance, SBP and other relevant government departments to discuss the matter of Rs5,000 note, said Senator Saleem Mandviwalla, Chairman of the Standing Committee.
He said withdrawing the high-value note would impact the economy and had its own pros and cons, therefore, any proposal would be approved in consultation with all stakeholders.
Published in The Express Tribune, December 27th, 2016.