Why Is 5000 Rupees Currency A Threat To Pakistan’s Economy?

Why Is 5000 Rupees Currency A Threat To Pakistan's Economy?

A Pakistani economist, Ammar Khan, has suggested that the country should demonetize its highest denomination of PKR 5,000 to tackle the current economic crisis and to boost tax collections. 

Khan, who cited India’s demonetization as a successful example, said there was PKR 8 trillion in cash in circulation, driving consumption without taxes coming back to the government. 

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Najam Ali is an investment banker who also supported Ammar Khan’s idea, saying that cash transactions should be discouraged.

He added that demonetization would lead to the digitization of payments and the documentation of the economy. However, some Twitter users didn’t agree.

If the IMF does not provide funding, Pakistan will likely default due to its severe cash shortage and historically high inflation rate. 

Pakistan’s informal economy is expected to be around $507 billion, or 35.6% of GDP-PPP levels, according to World Economics.

How Does A Weak Currency Affect The Economy?

A country that relies heavily on exports can benefit greatly from a decline in the value of its currency. Exports will be less expensive than imports when the currency is weak. 

The weak currency is advantageous in this scenario since exports increase in sales, they hire more workers, and they grow their businesses. Weak currencies frequently generate inflation in the nation because more currencies are required to buy products because the currency’s value has decreased. 

Inflation will rise in a country with a weak currency that buys more goods than it exports. A currency’s ability to self-correct, or return to normal strength, is referred to as this property of money. 

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While sometimes it requires specific regulations and actions to remedy it, the strength of a currency can self-correct.

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