Journey of Pakistan Currency

(Qasim Imran Chaudhery, Lahore)

Country Information - Islamic Republic of Pakistan (Part 2) اسلامی جمہوریۂ پاکستان

From "Ana" to Paisa and to Rupee

When Pakistan was carved out of the British India on 14 August 1947, it had no currency notes or coins of its own, nor a central bank or mint to print paper currency or mint coins. In order to cope up with the requirement of the new country, the Governor General of undivided India issued the ‘Pakistan (Monetary System and Reserve Bank) Order, 1947’ on 14 August 1947, the day before partition. Under this order, the Reserve Bank of India was to act as the common currency authority for India and Pakistan until 30 September 1948, allowing a cushion period of almost a year for the newly born state to issue its own currency. As an interim arrangement, the currency notes and coins issued by the Reserve Bank of India and the Government of India were to be the legal tender in Pakistan.

Thus the currency of the Indian Reserve Bank was inscribed with words "Government of Pakistan" both in Urdu and English, and placed into circulation from 1 April 1948 under the responsibility of the Government of Pakistan. So, following a seven-month period where notes of the Reserve Bank of India and the Government of India continued to circulate in Pakistan, modified notes of the Reserve Bank of India in the denominations of 2, 5, 10 and 100 rupees were introduced as planned, along with modified 1-rupee notes of the Government of India. The Indian currency consisted of two inscriptions on the front of the notes: at the top of the white area reserved for viewing the watermark the words "GOVERNMENT OF PAKISTAN" were inscribed in English, while at the bottom of the white area the Urdu rendition of the same phrase appears, i.e. "Hakoomat-e-Pakistan". For these inscriptions, the printing plates were modified, instead of overprints to avoid forgery.

In the meantime, the Pakistan government tasked its Finance Ministry to set up the country's own state bank by 1 July 1948. Despite the scarcity of staff, since most of the non-Muslims workers had left for India and resources, the Pakistani staff took upon themselves it as a challenge to set up the state bank three months in advance of the dead date of September 1948. The government issued the "State Bank of Pakistan Order, 1948" on 12 May 1948 under the authority vested in the Governor General of Pakistan by the provisions of Section 9 of the Indian Independence Act, 1947. Once the State Bank had been established, the efforts intensified to issue Pakistan's own currency much before the given date.

The initial set of bank notes, in the denominations of 5, 10 and 100 rupees, was prepared by Thomas De La Rue & Company of Great Britain. The 5-rupee note was deep blue, the 10-rupee in red, and the 100-rupee note was in rich green colour. To the right, on the front of each note, was a crescent and star in an oval, while to the left the denomination of each note was written in Urdu numerals in a similar oval. The denomination was repeated in Urdu at the bottom centre and in western numerals at the bottom right. On the front of the notes were panels at the bottom with the Urdu words for ‘Government of Pakistan’ repeated in small text. Until 1952 the notes produced for Pakistan had come from a variety of sources. The inscribed notes of the Reserve Bank of India, which were printed at the Government of India’s Security Printing Press at Nasik. The first issue of Rs. 5, 10 and 100-rupee notes was produced by Thomas De La Rue and Company in Great Britain, while the Re. 1- and Rs. 2 notes were produced in Great Britain by Bradbury Wilkinson and Company.

After settling down with the issue of the requisite currency, the next step was the setting up of the first Security Printing Press under the Pakistan Security Printing Corporation at Karachi. The press was owned partially by the British security printing company Thomas De La Rue & Co. Ltd. (40%) and partially by the Government of Pakistan (60%). The paid up capital for the Corporation was 7.5 million rupees. The foundation stone for the new printing works was laid in Karachi by the Muhammad Ali Jinnah, the Governor General of Pakistan, on 11 March 1949.

Till 1960, when Pakistan adopted the metric system, one Pakistani rupee had 16 ana and each ana having 4 paisa, i.e. one rupee having 64 paisas. And as for the coins, there were coins of one, two paisa, one ana, two ana, 4 ana, 8 ana and one rupia (rupee). Thus, one ana was the basic coin (below left two sides of one ana, 2 ana and 8 ana).

Then in 1960, the country switched to metric system and now one Pakistani rupee had 100 paisa. The coins were of one, two, five, 10, 25, 50 paisa. Later a coin of one rupee was also added. Currency notes of 1,2,5,10,50,100 and 500 have been in use for quite sometime now.

The present currency notes in circulation of Rs.10,50,100 and 500 denominations are as under:

Lately, owing to the diminishing value of the sub divisions of one rupee, not only the currency notes of one, two and five have been replaced with coins, but also all coins of lower than one rupee have ceased to be of any value and are not in circulation anymore. Recently, currency notes of 20 and 5000 have been added to the inventory. These notes have many security features included in these and chances of forgery have almost been made negligible.

On 10 November State Bank of Pakistan issued new currency notes of 100 and 500 rupees denomination. These notes carry special identification features for the blind and will go a long way to counter the fake currency notes already in circulation in the country. The back of Rs. 100 note sketch of Ziarat Residency where Quaid-e-Azam spent his last days, while Badshahi Mosque of Lahore appears on the back of Rs. 500 note. (photograph courtesy AFP). There was a lot of hue and cry when the State Bank revised the Rs.20/- banknote since it was very similar to the Rs.5000/- since even the literates sometimes got confused and gave away a Rs.5000/- note instead of a Rs.20/- note. Now a new design and colour of Rs. 20 note is in circulation. The Five rupee note has also been reintroduced as it is quite cumbersome to carry a coin of five rupee.

The State Bank of Pakistan has issued new coins of Rs.1 and Rs.2 denomination with, changed metal composition, colour and weight effective from November 20. The design of changed metal will be same as of the coins introduced from September 1998. The existing coins of Rs.1 and Rs.2 in circulation will continue to be legal tender and remain in circulation. Rs.1 coin will be of aluminum, white colour with 20 mm diameter having 1.75 grams weight where as Rs.2 coin will of aluminum white having 22.5 mm diameter with 2.6 gram weight. The new composition of coins was approved by the Federal Cabinet in its meeting on January 2007.

Economy of Pakistan

At the time of independence, the economy of the newly born state was abysmal, since during the British times, all industrial infrastructure was laid in what constituted India in 1947. Although Pakistan had inherited 20 per cent of the subcontinent's population, her share in industry was less than 7 per cent, consisting mostly of small-scale and minor industrial units: the 34 factories did not total up to a daily employment of more than 26, 400 persons. The East wing which produced 70 per cent of the world's jute, had not a single jute mill since all jute mills were located in Calcutta, India and was thus the almost sole buyer. In the West wing, only 16000 of the total 1500000 cotton bales produced could be processed domestically. Pakistan did not have a single ordinance factory and other major industrial units. The new state does not have its own bank and depends on the reserve bank of India.

However, starting from scratch and collecting papers from rubbish, the Pakistani officials and office staff picked bits and pieces together and started building up the new country. Now after some six decades, Pakistan is a fast growing country. Pakistan witnessed a steady pace of economic growth in the 60s with major thrust on agro-based industry, specially cotton, which however slowed down in the 80s/90s due to inept governments. However for the first time after the 60s, the steps taken at the macro level by the present government under General Pervez Musharraf, the economic outlook of the country has brightened and finally there is a hope of prosperity for its generally poor people. Since 1999, the foreign exchange reserves have swelled from disgusting US $ 500 million (when the country was being governed by the "democratically elected government") to over US $ 12 billion. For the first time the exports have crossed US $ 1 billion mark.

Pakistan Tops Dollar Bond Performance in Asia

24-04-2009: Despite continued uncertainty, the world's largest dollar bond investors are continuing to maintain holdings in Pakistan. According to HSBC, Pakistani bonds have returned 35 percent this year, the best performance in Asia among dollar debt indexes compiled by London-based HSBC. ING Groep NV, Erste Sparinvest KAG and HSBC Holdings Plc, which oversee more than $800 billion in assets, are maintaining holdings of Pakistan’s dollar bonds as almost $13 billion in assistance from the International Monetary Fund and aid pledges help the country stave off default. Pakistan’s 6.875 percent dollar bond maturing in June 2017 yielded 18.62 percent yesterday, versus a record high of 26.30 percent on Nov. 3, 2008, according to data compiled by Bloomberg. The Karachi stock index is up 27 percent this year, compared with a 12 percent gain in MSCI’s emerging-market stock index. Pakistan also won promises this month for $5.3 billion in aid from more than 20 countries to help shore up its economy and combat al-Qaeda and Taliban militants.( Reference )

Past and the Present

The Past Under the Military Regime
The Present (and the Future?? )

The military rule that stretched from 1999 to early 2008, had many ups and finally a bleak down. From thriving economy and building of Forex reserves from mere US $ 500 miilion to all time US $ 16 billion, lot of water flowed under the bridge. As per the Ministry of Finance, Government of Pakistan, despite an extra-ordinary surge in oil prices and the devastation caused by the earthquake of October 8, 2005 Pakistan's economy continued to maintain a solid pace of expansion in 2005-06. Pakistan's economy has proved itself as remarkably resilient in the face of shocks of extra-ordinary proportions. The magnitude of growth that Pakistan has achieved during the last four years in a row has positioned Pakistan as one of the fastest growing economies in the Asian region. This growth momentum is underpinned by wide-ranging structural reforms, macroeconomic stability, and consistency and continuity in policies.

For years since 1970 onwards, Pakistan had a poor track record of saving and heavy dependence on the IMF and the World Bank for assistance in developing its basic infrastructure. However, in recent years, the government has taken some prudent mid to long term steps to revive its economy, which has started showing its results. Perhaps for the first time in its history, Pakistan has not only repaid sizeable portion of its foreign debt, but has also decided not to take any more loans. The country's GDP now stands at 4% from 2% in the 90s. The on going peace talks with India have further reduced the tension between the two countries, which has given boost to its economy and foreign trade. Pakistan now stands at the cross roads and hopes of better future are in sight - a fact now often acknowledged by the world economic bodies.

The GDP growth remained in the 6-8% range in 2004-06. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally.

The government and the financial wizards steadily raised the development spending in recent years, including a 52% real increase in the budget allocation for development in FY07. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. Development in urban areas of Pakistan has remained high but is low in rural areas.

Index of Economic Freedom: There are yet other signs of recovery in the economy of Pakistan. Recently, the Index of "economic freedom" has placed Pakistan on the 110th slot in the current year (2006), considerably higher than the 133rd position on which it stood in 2005, on a scale of 1-155.

Pakistan has three stock exchanges, established each in Karachi, Lahore and Islamabad. The Karachi Stock Exchange (KSE) is the more dynamic and volume based as compared to the rest of the two. The KSE was initially 50 50 companies based, but was elevated to KSE-100 on 1 November, 1991 and presently ranks as one of the most accepted Exchange in the region. The KSE-100 is a capital weighted index and represents about 86 percent of market capitalization of the Exchange. In 1995 the KSE all share index was constructed and introduced on September 18. The KSE has seen an up rise trend recently, though after crossing 10,000 mark, it plummeted a few months ago, crashing billions of rupees of investors. However, it has again picked up and at this time, the KSE-100 index has crossed 11,000 mark. The Lahore (LSE) and Islamabad (ISE) stock markets are heavily affected by performance of KSE - in fact all three stock exchanges rise and fall together.

Karachi Stock Exchange was declared as the “Best Performing Stock Market of The World" in 2002. KSE has been well into the 3rd year of being one of the Best Performing Markets of the world as declared by the international magazine “Business Week”. Similarly the US newspaper, USA Today, termed Karachi Stock Exchange as one of the best performing bourses in the world.

However, soon cracks started appearing in the economy in the early 2008, mainly due to soaring oil prices and which multiplied the oil bill many times. Suddenly a well meaning economy started to crumble - The inflation which continued to rise in previous years, though at a lower pace, suddenly jumped to almost 29% in 2008 as compared to 9% in 2005 The rupee currently stands at 80 against one US dollar whereas just six months ago, one dollar was equal to Rs 60. The country’s trade deficit stands at 12 billion dollars, which is the highest ever in its 61-year old history. The country's stock exchanges are at all time low and there is no signs of recovery. Once thriving KSE-100 index of over 15000 points is at a record low around 9,187 on 21 November 2008. The 2008 onwards, Pakistan's economic is nose diving rapidly and alarmingly.

The State Bank of Pakistan, though enforced tighter monetary grip, could not harness the growing inflation and the current account deficit - driven by a widening trade gap as import growth outstrips export expansion - and had to draw down reserves and dampen GDP growth in the medium term.

Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, the government has decided to seek loans and aids from donor agencies, including the IMF - which once the previous PM Shaukat Aziz once claimed that we have shut the doors of IMF. Pakistan is also turning to the "Friends of Pakistan" for assistance and support - which so far hasn't come or being promised. The precarious economic situation has resulted in S&P lowering Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less then the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%

As of now, Pakistan urgently needs at least $3 billion -- and as much as $5 billion and has requested the IMF for as much as $10 billion. "If Pakistan doesn't get the money, there may be a repeat of freezing foreign currency accounts, foreign currency rationing and, eventually, a default on its sovereign loans," the Minister in-charge for economic affairs, Mr Shaukat Tarin is reported to have said. The government hopes that China, the United States or Saudi Arabia would lend cash or oil rebates, but all three have made it clear they aren't able or willing to do that just yet.

Pakistan is also looking to the newly created Friends of Pakistan group, which includes some of the richest countries in the world. But U.S. Assistant Secretary of State Richard Boucher, who attended the group's second meeting Monday in Islamabad, told reporters that "it's not a cash advance. … The goal is not to put money on the table but to look as to how to supplement Pakistan's efforts."

This puts Pakistan into the arms of the IMF once again, which will comply to Pakistan's needs only if politically unpopular concessions are announced by the GOP, which will draw criticism from across the country and may tarnish its political image - since many believe that Pakistan with some better management of the economy can still sustain the crisis without IMF's help.

So today Pakistan's economy stands at a crossroads - either to take a healthy upward trend or continue with the stalemate. Many believe for the good since Pakistan with its external debt to GDP ratio of 28% is much better placed as compared to Iceland's 545% and Ukrainian's 71%.

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