Aftab Anwar Baloch
The Founder of Pakistan Quaid-i-Azam Muhammad Ali Jinnah, in May, 1948, took steps for immediate establishment of the State Bank of Pakistan. These were implemented by State Bank of Pakistan Order 1948 dated 12th May1948 and the State Bank of Pakistan formally commenced its operation on July 1, 1948.
As per the State Bank of Pakistan Order 1948, the State Bank of Pakistan was charged with the duty to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage.
The State Bank of Pakistan Act, 1956, with subsequent amendments, forms the basis of its operations today. In terms of Section 24, State Bank of Pakistan has the sole right to issue banknotes. The State Bank of Pakistan introduced the first emergency issues in the denominations of 5, 10, and 100 rupees, printed by De La Rue & Company between 1948 and 1960. Presently, new banknote series is in circulation since 2005 with introduction of 10 rupee denomination banknote followed by introduction of other banknote denominations of 20, 50, 100, 500, 1000, and 5000.
In order to monitor and control currency in circulation, the State Bank of Pakistan has established Currency Management Department. Currency Management is one of the core operations of SBP Banking Services Corporation. Under section 5(b) of SBP Banking services Corporation Ordinance 2001, SBP-BSC is entrusted with the responsibility of handling receipt, supply and exchange of banknotes and coins on behalf of the State bank of Pakistan. The purpose of currency management by SBP-BSC is to put together and maintain public confidence in the currency by preserving its value and integrity and, by making available adequate stock of currency notes to meet the demand for currency and ensure proper functioning of the economy. Besides implementation of the Clean Note Policy, currency management includes; the yearly estimation of the requirements of currency notes of various denominations for issuance in the coming year, help placing the indent for supply of fresh notes with Pakistan Security Printing Corporation (PSPC) through SBP, preparation of schedule for receipt of fresh notes from PSPC, examination and storage of these notes in a systematic manner, issuance of these notes to the commercial bank/ chests and finally withdrawal of soiled notes from circulation and finally their destruction.
Taking measures for detection of misprinted fresh notes and forged currency notes also remains one of the hallmarks of the currency management process. The distribution of currency notes is carried out by BSC through its four issue circles located at Karachi, Lahore, Quetta and Peshawar offices along with currency chests/ sub-chests established at the designated branches of National Bank of Pakistan (NBP), government treasuries and branches of commercial banks spread all over the country. A computerized system for issuing accounting function is operational in all the four Issue Offices. Establishment of Currency Management Department Banking Services Corporation as an operational arm is supposed to execute currency operations and its management throughout the country.
Banknote Preparation, Material, and Circulation Process in Pakistan
Banknotes are an integral part of the currency system in Pakistan. The State Bank of Pakistan (SBP) is responsible for the issuance, management, and circulation of banknotes. Currency is a broad term that encompasses all areas right from designing of notes to issue and distribution. Besides, it deals with the inventory management of notes, withdrawal of soiled notes from circulation and their disposal, mechanization of notes processing and eco-friendly destruction of soiled notes, exchange of notes, anti-counterfeit measures and promotion of good notes culture among the masses. The demand of Bank notes is estimated broadly on the basis of the growth rate of the economy, expected inflation rate, replacement of soiled notes, demonetizations /coinization and stock position.
Here’s an overview of the banknote preparation, materials used, and the circulation process in Pakistan:
Banknote Preparation
Design and Printing: The design of Pakistani banknotes is carefully crafted, incorporating historical landmarks, cultural symbols, and portraits of national leaders. The SBP designs the banknotes in collaboration with specialized printing companies.
Security Features: Pakistani banknotes incorporate various security features to prevent counterfeiting. These features include watermarks, security threads, micro printing, latent images, see-through registration, and optically variable inks.
Banknote Material
Substrate: Pakistani banknotes are printed on a special paper substrate composed of cotton and linen fibers. This substrate provides durability and prevents easy wear and tear.
Inks: High-quality inks, including special inks with security features, are used during the printing process. These inks contribute to the aesthetic appeal and security of the banknotes.
Circulation Process
Printing: After the design is finalized, the banknotes are printed in high-security printing facilities using specialized printing presses and techniques.
Quality Control: Each banknote batch undergoes rigorous quality control checks to ensure that they meet the required standards of design, printing, and security features.
Issuance to Banks: Once printed, the banknotes are issued to commercial banks through the SBP. Banks receive the banknotes based on their requirements and demand for currency in circulation.
Distribution to Branches and ATMs: Commercial banks distribute the banknotes to their branches and ATMs across the country, ensuring sufficient availability for the public.
Cash Transactions: Banknotes enter circulation through various cash transactions, including payments, withdrawals, and exchanges between individuals, businesses, and financial institutions.
Cash Management: Banks and financial institutions manage cash flows, monitor the condition of banknotes, and periodically return worn-out or damaged banknotes to the SBP for replacement.
Currency Processing Centers: The SBP operates Currency Processing Centers (CPCs) equipped with advanced technology for authenticating and processing banknotes. CPCs receive and process banknotes from banks, checking for authenticity, fitness, and fitness sorting for re-circulation or destruction.
Withdrawal and Replacement: Worn-out, damaged, or unfit banknotes are systematically withdrawn from circulation and replaced with new banknotes through the SBP’s currency management operations. It’s important to note that the specific processes and security measures involved in banknote preparation and circulation are continuously evolving to stay ahead of counterfeiters and ensure the integrity of the currency system.
Security Features
Issue Department of SBP is responsible to deal with issuance of currency and its assets management. Each Issue office of the Bank has an Issue Department that is distinct from the Banking Department. The liabilities of the Issue Department are the total amount of the Bank notes in circulation.
There are two main types of security features Overt i.e. visible with naked eye and Semi Covert visible with the help of basic machines like magnifying glass, UV lamp etc.
Some of the salient security features of the Bank notes are as under: –
- The Security Thread.
1.1 Embedded security thread into the paper runs from top to bottom at the front left side of the bank note. Word ‘State Bank of Pakistan’ and denomination numeral can be seen in embedded thread (Up to Rs.50).
1.2 Partially embedded window security thread into the paper runs from top to bottom at the front left side of the bank note. Denomination numeral can be seen in the thread. The thread appears as silver dashes at the front of the note. When the note is held against the light, the metallic thread appears as a dark line (Rs.100 & above denominations).
- The Watermark:
2.1 When the note is held against the light, the Portrait of Quaid-e-Azam can be seen.
2.2 The denomination of the note appears below the portrait of Quaid-e-Azam. (all denominations).
- See-through: Value figure of the note appears partly at the obverse left top and partly at reverse right top giving a perfect look when viewed through light (All denominations).
- Latent Image: Hidden denomination numeral appears at the right side of the portrait when the note is viewed from different angles. (Rs.20 & above denominations)
- Raised Printing: Quaid –e- Azam’s portrait, denomination numeral and the raised lines appear at extreme right and left side of the note are printed by intaglio process. One can easily feel the raised printing by touching the note (Rs 20 & above denominations).
- Micro Lettering (Using Magnifying Glass): Micro lettering denomination numeral appears at front and back of the note. (All denominations)
- Identification Mark For visually impaired persons Raised lines/ circle appear at the bottom left of the front side of the note for visually impaired persons to recognize the denomination of the note with a touch. (Rs.20 & above denominations)
- OVI Printing: The design printed in Optical Variable Ink (OVI), changes colour when the note is viewed from different angles. (in Rs.500 & above denominations)
Historical Data on Currency Circulation
As above table shows Pakistan has increased the printing of circulation notes with every passing year which ultimately decreases the value of Pakistani currency in International market, further increase in dollar pak rupees parity rate, increase in inflation, price hike, increases the debt burden and resultantly pak rupees comes under pressure and loses its real value.
Other Monetary Instruments
Currency of Pakistan: Challenges and Opportunities
Pakistan’s currency, the Pakistani Rupee (PKR), faces various challenges and opportunities in its stability, value, and management. Here is an overview of some key factors impacting the currency:
Inflation: Pakistan has struggled with persistent commodities price increase and inflation, which affects the value of the currency. High inflation erodes purchasing power, reducing the value of the Rupee. Controlling inflation is crucial for maintaining currency stability.
External Factors: The Pakistani Rupee is influenced by external factors such as global oil prices, geopolitical events, and international economic trends. Fluctuations in these factors can lead to volatility in the currency’s value.
Balance of Payments: Pakistan’s current account deficit has been a significant challenge. When a country prints more currency notes, imports more goods and services vis a vis its exports, it puts pressure on the Rupee. Managing the balance of payments is crucial to maintain currency stability.
Fiscal and Monetary Policy: Sound fiscal and monetary policies play a vital role in currency management. Implementing prudent measures, such as reducing government deficits, managing public debt, and ensuring an appropriate monetary policy, can help strengthen the currency.
Foreign Exchange Reserves: Adequate foreign exchange reserves are essential to support the value of the Rupee and maintain stability. Building and managing reserves help Pakistan mitigate currency volatility and meet external obligations.
Remittances: Pakistan is heavily dependent on remittances from its overseas workers. Remittances provide foreign exchange inflows, which support the Rupee and contribute to the stability of the currency.
Opportunities:
Economic Growth: Pakistan’s growing economy presents opportunities for increased trade, foreign direct investment (FDI), and export potential. A robust economy can positively impact the currency’s strength and stability.
CPEC (China-Pakistan Economic Corridor): The CPEC initiative aims to develop infrastructure and enhance economic cooperation between China and Pakistan. It has the potential to attract investments, improve trade balance, and boost the Pakistani Rupee.
Export Diversification: Promoting export diversification can help reduce the trade deficit and increase foreign exchange inflows. Encouraging sectors such as textiles, IT services, agriculture, and pharmaceuticals can contribute to currency stability.
Tourism: Pakistan has immense tourism potential, including cultural heritage, scenic landscapes, and adventure tourism. Developing the tourism industry can attract foreign visitors, generating foreign exchange inflows and supporting the currency.
Technological Advancements: Embracing technological advancements and digitalization can boost productivity, attract investments, and improve economic efficiency. These factors positively impact the currency’s stability and strength.
Strengthening Governance and Institutions: Implementing transparent governance practices and strengthening institutions can enhance investor confidence, attract foreign investments, and contribute to currency stability.
It is important to note that addressing challenges and seizing opportunities requires a comprehensive approach encompassing economic policies, structural reforms, and consistent efforts to promote stability and sustainable growth.
Adopt Polymer Banknotes
Banknotes are made from paper, and waste of the banknotes is burned after shredding that releases harmful pollutants into the atmosphere. The combustion process can produce carbon dioxide (CO2), a greenhouse gas that contributes to climate change, as well as other air pollutants like carbon monoxide (CO), nitrogen oxides (NOx), and particulate matter. These emissions places adverse effects on air quality and human health.
More and more countries including Australia, Canada, New Zealand, the United Kingdom etc have successfully introduced polymer banknotes into circulation. Polymer banknotes are a type of currency made from a polymer substrate, usually a flexible plastic material. They are designed to replace traditional paper banknotes and offer several advantages over their paper counterparts.
Polymer banknotes are more durable and long-lasting compared to paper banknotes. They are resistant to tearing, creasing, and soiling, which extends their lifespan and reduces the need for frequent replacements. Polymer banknotes are recyclable. All that is needed is to palletize the shredded polymer notes at high temperatures. The recycled polymer pallets can then be turned into new plastic products, like compost bins, flower pots, outdoor benches, and power sockets.
The writer is Customs, Tariff and Trade Expert