Counterfeit currency

When going to a bank to withdraw money, one would usually assume that one is engaging in a reliable source of bank notes. It is usually considered unfathomable for banks to issue counterfeit notes to their customers. A neighbourhood shop maybe, but surely not a bank. Turns out we are all wrong – at least in Pakistan. A Senate hearing this past Friday confirmed that fake currency notes were circulated by banks throughout the country during Eidul Azha. Apparently, this was because most banks do not have any machines to verify the notes they are giving to their customers. The Senate Standing Committee on Finance has done well to question the State Bank of Pakistan on this bizarre situation. But the response of the SBP has been far from adequate. The Senate noted that banks were still using a manual system to check fake currency, which is far from efficient. The SBP claimed that currency notes are only provided to banks after stringent scrutiny. Despite this stringent scrutiny, more than a fair share of fake notes have found their way into the economy through banking channels.
After the Senate Committee instructed the SBP to check this issue by installing machines, the SBP officials claimed that the issue could only be resolved by January 2017. So essentially, the SBP says that there is no guarantee that Pakistan’s banks will be issuing real notes to customers before the year 2017. It is highly alarming that the SBP can make no guarantee that the notes being issued in its name will be real or fake. To mitigate the situation, the SBP pointed to an installation cost of Rs400 million for two machines to verify all the notes in the country. It is shocking to learn that the SBP has no such mechanism already in place. Another strange initiative promised by the SBP governor is to launch an awareness campaign on the issue. The fact is that none of these are needed. The issue is at the end of the SBP and the banking system, not at the end of the public. Is the SBP admitting that the public should be suspicious of the bank notes that bank tellers and ATM machines issue to them? And what about those who have been given counterfeit notes by bank tellers? Will there be a mechanism in place for them to be issued the correct notes? The issue with this, as the finance secretary correctly noted, is that giving compensation to those who have been defrauded would encourage suppliers of counterfeit notes. But here, it is clear that the regulatory failure is the government’s. How can it deprive people who took money from banks, thinking it to be perfectly legitimate, of hundreds of thousands of rupees of their legitimate earnings? The SBP may be caught between a rock and a hard place, but this situation is of its own making. It must rectify the issue, but much before the 2017 timetable it has offered. Otherwise, the already shaky banking system in the country will lose even more credibility.