Foreign investors suggest demonetization of Rs5,000 banknote in Pakistan

Foreign investors suggest demonetization of Rs5,000 banknote in Pakistan

Foreign investors have suggested the authorities in Pakistan to demonetize Rs5,000 banknote in order to promote cashless economy.

Amir Paracha, President, Overseas Investors’ Chamber of Commerce and Industry (OICCI) told media persons that the trade body had recommended the government to withdraw the high valued banknotes in order to promote cashless economy.

He said that the OICCI recommended the government to demonetize Rs5,000 banknote.

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This suggestion is not new, as other trade bodies have also previously raised similar demands.

The Pakistan Business Council has also recommended discontinuing the highest denomination banknote in order to formalize the country’s economy and broaden the tax base. However, they note that without political will and capacity in the enforcement machinery, chasing existing taxpayers for more while allowing the informal sector to grow is not a viable solution.

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With a large portion of money in circulation outside of the banking system and a significant percentage of the population not included in any financially transparent system, the need for financial inclusion and disincentives for the use of cash are major thrusts. The use of smartphones and point of sales (POS) terminals can potentially serve to switch from cash to plastic and create transactional transparency, though POS terminals are currently expensive and not widely available in the country.

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Syed Shabbar Zaidi, former chairman of Federal Board of Revenue, has also suggested a gradual evaporation of the Rs5,000 banknote with a prescribed time limit up to which the note will be valid, after which it can be exchanged with the bank. However, this proposal is different from the Indian scheme.

It remains to be seen whether the Pakistani government will take any action on this recommendation, but it is clear that there is a growing sentiment among investors and trade bodies to promote a cashless economy and formalize the country’s financial system.

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