Should Pakistan stop using the Rs5,000 note?

In a recent appearance on Geo News’ Aaj Shahzeb Khanzada Kay Sath, Shabbar Zaidi, the former chairman of the Federal Board of Revenue (FBR), emphasized the importance of discontinuing the Rs5,000 note and imposing restrictions on the physical movement of dollars as crucial steps in reducing the prevalence of the cash-based economy in Pakistan.

Zaidi’s comments came shortly after a fake notification circulated among the public, falsely claiming that the government intended to ban the highest denomination note.

Zaidi argued that Pakistan has a high circulation of currency, and the Rs5,000 note facilitates transactions in the cash-driven economy. He also pointed out that people have been hoarding wealth in their lockers in the form of dollars and Rs5,000 notes, which he believed should be prohibited.

He even suggested that individuals found in possession of US dollars in cash within Pakistan should be subject to arrest unless they can demonstrate the legitimate source of those dollars.

India’s discontinuation of the Rs2,000 note

Additionally, Zaidi predicted that approximately 50% of the population would resist depositing their Rs5,000 notes in banks if asked to do so, drawing a parallel with India’s discontinuation of the Rs2,000 note in an effort to combat corruption. However, he proposed providing a reasonable grace period for note holders to exchange them.

Zaidi also advocated for the transfer of responsibilities from exchange companies to banks, ultimately phasing out exchange companies within a year. He argued that exchange companies, apart from those in Dubai, are uncommon worldwide, effectively making the dollar the de facto currency of Pakistan due to their existence.

In contrast, former finance minister Miftah Ismail strongly opposed Zaidi’s idea, contending that it would only create uncertainty and fear without effectively addressing the underlying problem. Ismail mentioned that India experienced a 1-2% decline in GDP as a result of discontinuing the Rs2,000 note and argued that discontinuing currency has not been proven to stop corruption anywhere in the world.

Ismail also expressed concerns that Zaidi’s proposal could lead to an increase in dollarization and credited the recent appreciation in the value of the Pakistani rupee to improved confidence following meetings between military leadership and business representatives.

Additionally, Ismail stressed the need to address the smuggling of petroleum products from Iran as part of efforts to stabilize the economy.

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