Pakistan’s digital payments boom fails to break economy’s dependence on cash

New Delhi, Aug 16 (IANS) Pakistan’s rapid growth in digital payments has failed to translate into a meaningful reduction in the country’s reliance on cash, highlighting a widening gap between how money is transferred and how it is ultimately spent, a report has said.

Despite a surge in mobile banking usage, digital merchant adoption and government-led efforts to promote cashless transactions, currency in circulation (CIC) reached a record Rs 11.94 trillion in fiscal year 2025-26, according to the Dawn report.

This represents a 94 per cent increase from Rs 6.14 trillion in FY2020, underscoring the persistent role of cash in everyday economic activity.

The trend presents a paradox for policymakers. While digital payment infrastructure has expanded rapidly, much of the money flowing through bank accounts, mobile wallets and instant-payment systems is eventually withdrawn and converted into cash before being spent.

Analysts describe this phenomenon as a “cash-conversion” cycle rather than a true transition toward a cashless economy.

Pakistan has witnessed strong growth in digital financial transactions over the past six years.

Mobile banking transaction values have increased sharply, digital merchant networks have expanded, and initiatives such as the government’s Cashless Pakistan programme have encouraged greater use of electronic payments.

However, these gains have largely been concentrated in the movement of money rather than in end-use spending.

Central bank data show that while the nominal value of cash circulating in the economy has nearly doubled since FY2020, some indicators suggest a gradual decline in cash intensity over the longer term.

Currency as a share of broad money supply has fallen from 30.1 per cent in FY2020 to 25.7 per cent in FY2026, the report stated.

When adjusted for inflation, the picture changes further. In real terms, the purchasing power represented by cash in circulation declined by around 12.5 per cent over the period, the report noted.

However, this trend appears to have stalled in recent years, with real cash holdings beginning to rise again after reaching a low point in FY2024.

Similar patterns emerge when cash holdings are measured against economic output. Currency in circulation as a percentage of GDP declined steadily until FY2024 before rebounding in FY2025 and FY2026.

–IANS

pk