While proposals to change Pakistan’s currency notes to solve this or that problem have a way of emerging every now and then, the central bank or the government had never said any such move was indeed afoot – until State Bank Governor Jameel Ahmed broke the news to a media gaggle on Monday. It may seem too soon to comment on the development right away. On the other hand, it is already too late for any constructive discussion of the matter because the central bank has already made up its mind and put its plans in motion. The breaking information is scant on substance, but Ahmed has been quoted as saying the central bank has decided in principle to overhaul the existing currency system by introducing new currency notes across all denominations. A desire to combat illicit financial activities including counterfeiting has been cited as a motive for the move, which is all well and good, but now may be a good time for the central bank to publish its plan in detail.
It must be said that the central bank has every right to introduce new designs of bank notes. In fact, global best practice favours regular periodic upgrades or redesigns to bring the national legal tender abreast of the times. In recent decades in particular, technological advances have tended to make existing security features obsolete or enable compelling new features every few years. Central banks around the world are known to have introduced new designs or phased out existing designs of notes under their control for any of several reasons including counterfeiting, wear and tear, design refresh, and economic reform – when introducing notes of new denominations or phasing out existing denominations aligns with economic policies like, say, promoting cashless transactions.
If we look at the potential reasons for a currency system overhaul, the need for new state-of-the-art security features are top of the list. Targeting stashed black money is unlikely to be a motive because in a country like ours, illicit wealth is stored in bullion, hard currencies, and assets rather than in a currency bleeding value most of the time. This rules out any abrupt change of currency notes that would be required to hamstring the owners of any such stashes. Documentation of the economy has been a national priority for a while and the SBP should do all it can to gently nudge the nation in that direction. Promotion of cashless transactions is certainly a pointer in that direction. Whether or not the SBP plan takes that into account is not known. The need for a cultural design refresh does not seem urgent, but now that the opportunity has presented itself, let us hope the central bank will utilise it to the full.
On the other hand, none of the above is to say some such efforts have not been misguided in thought or bungled in execution. Also, any missteps in managing the process can potentially cause untold human misery. The impact of any such misstep will be especially acute as Pakistan is still predominantly a cash economy. From the farm to the market and from the store counter to the kitchen top, there are multiple networks of thousands of economic actors for whom banks may as well not exist. They pay cash, demand cash, and trust in Allah Almighty. Any hiccup in the flow of currency threatens to bring that network of exchange – the engine of Pakistan’s kitchen economy – to a halt. That is not a risk Pakistan can run at the best of times, and these are scarcely the best of times. The key to avoiding any such will be graduation and overlap between the validity of new and old notes. The SBP will do well to allow several months in which both designs are legal tender before phasing out the old design, allowing the peoples adequate time to familiarise themselves with the new notes with the safety of old notes. Equally, the central bank has a duty to make and execute its decisions in a transparent manner, sharing all pertinent information with the people well in time. If the project is as advanced as the SBP governor says it is, it is high time he told us all about it.