In a recent interview, Shabbar Zaidi, the former chairman of the Federal Board of Revenue (FBR), advocated for the discontinuation of the Rs5,000 currency note in Pakistan. He argued that this step, along with restrictions on the physical movement of dollars, could play a pivotal role in reducing the cash-driven economy prevalent in the country. However, his proposal has stirred up a debate on the potential consequences of such a decision.
Zaidi pointed out that the circulation of currency in Pakistan is remarkably high, and the Rs5,000 note contributes to the convenience of transactions in the cash economy. He noted that many people hoard wealth in the form of dollars and Rs5,000 notes, which, in his opinion, should be banned. Zaidi even went as far as suggesting that anyone found in possession of a substantial amount of dollars in cash should face scrutiny to determine the source of those funds.
Furthermore, he predicted that a significant portion of the population might resist depositing their Rs5,000 notes in banks if asked to do so, drawing a parallel with India’s decision to discontinue the Rs2,000 note in an effort to combat corruption.
Zaidi’s proposal also included the idea of phasing out exchange companies and transferring their functions to banks. He argued that this move would gradually eliminate exchange companies and promote the use of the national currency rather than foreign currencies.
However, not everyone agrees with Zaidi’s perspective. Former finance minister Miftah Ismail strongly opposes the idea of discontinuing the Rs5,000 note. He believes that such a move would only lead to uncertainty and fear among the public, rather than addressing the underlying issues. Ismail pointed out that the Indian economy experienced a 1-2% decline in GDP after discontinuing the Rs2,000 note, indicating that it may not be a guaranteed solution to curbing corruption.
Ismail also raised concerns about people finding ways to evade restrictions, as was witnessed in India when every Rs2,000 note was eventually encashed. He argued that discontinuing a currency note does not automatically result in a reduction in corruption, and it may even increase dollarization within the economy.
Instead, Ismail credited the recent appreciation in the value of the Pakistani rupee to increased confidence stemming from a meeting between military leadership and business figures. He also emphasized the importance of tackling issues like the smuggling of petroleum products from Iran to strengthen the economy.
The debate over whether Pakistan should discontinue the Rs5,000 currency note continues to divide experts and policymakers. While Zaidi believes that this measure could be instrumental in reducing the cash economy and curbing corruption, Ismail argues that it could lead to uncertainty and potentially exacerbate economic challenges. The decision, if pursued, will undoubtedly require careful consideration of its potential consequences and the need for alternative solutions to address economic issues in the country.