The State Bank of Pakistan’s latest annual Payment System Review for fiscal 2024 shows that the trend towards the digitization of currency, and a corresponding decline in the use of physical money, continues, as all of society goes digital, and the economy accompanies it. Already, there is a case for claiming that the economy is already digital, rather than going in that direction, with retail transactions growing from 4.7 billion in fiscal 2023, to 6.4 billion in fiscal 2024, a 35 percent increase. Digital payments were already 84 percent of the total volume, up from 76 percent the year before. However, paper-based transactions still constituted 83 percent of the value, amounting to Es 448 trillion. Along with cash, it seems that the cheque, draft and pay order are going the way of the dinosaur.
Of course, this digitization has not apparently scratched the surface of tax evasion, corruption and other illegal financial transactions. It is only a matter of time before the tax collection authorities, already under pressure to meet ever-increasing targets, find that at least retail transactions are traceable. While tax may be evaded in large transactions, shopkeepers trying to save tax on a soft drink and a pack of cigarettes will lose customers. It should be realized that the driving force behind this switch is not technology, but convenience; the technology has been developed to make the convenience possible. There are no doubt minds in the State Bank, as well as other central banks, considering the transformation that is occurring in the nature of money, and the way people relate to it. The State Bank may be faced with problems of regulation (for starters, mobile wallets already have 42 percent share). However, the shift to e-banking is as transformative as that from having to carry round actual bullion to paper notes.
For a start, there are still hangovers. Large cash transactions, with stacks of large-denomination notes carried around in sacks, still take place in real estate, for example, not because anyone wants to avoid taxes, but because the buyer and seller don’t trust each other enough to accept a cheque. So who will accept a thumbprint and a swipe? It is to be expected that these issues will be resolved. Bullion remained valuable, and readily convertible into paper, but paper may not as the digitization revolution proceeds. The State Bank has already started examining blockchain technology, which is where the future probably lies.
