Pakistan is undergoing a profound digital transformation towards digital finance in the financial system with the pilot initiation of a Central Bank Digital Currency (CBDC) by State Bank of Pakistan (SBP). RAAST is a real-time payment system in the country and the officials of SBP have stated that since its inception in 2021, it has handled more than Rs 8 trillion worth of transactions.

The CBDC is not just a channel to transfer money like RAAST – it represents the money itself, issued by the central bank. Pakistan has a mobile phone penetration rate of over 82 percent and the expected remittance inflow of an estimated 38.3 million during the fiscal year 2024-25.

It stands ready to use CBDC to enhance financial inclusion by cutting transaction fees, digitalisation of welfare payments, and including millions of unbanked citizens into the formal economy.

The economic consequences of embracing CBDC are the trade-offs between high short-term expenditure and efficiency, inclusion, and transparency in the long run. According to the SBP annual report of 2022-23, Pakistan spends over Rs 28 billion annually in cash-management-related activities annually in Pakistan, including storage and maintenance of cash, printing, banknotes processing, distribution, and ATM-related maintenance, despite cash accounting being approximately 62 per cent of transaction volume at the mid of 2023.

These expenses may be significantly lower as the use of programmable digital rupees that can be stored on a secure mobile wallet can substantially replace physical money in the system that the central bank can issue as digital form of legal tender.

The cost of using traditional payment channels of paying via ATM withdrawals, or clearing a cheque is still expensive and time consuming. As of 2022, the fees for using ATM vary between Rs 20- 23 service fee per transaction, and a cheque clearing process may require two days of business, with challenges to control over liquidity and maintaining cash........

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