If you took a trip to a livestock market this past Eidul Azha, you could see Pakistan’s cash paradox performing itself live.

On one side, a bank kiosk with a QR code taped to a pole and some digital transactions happening. A few feet away, a bigger deal closing the old way: a purchaser counting out bundles of Rs5,000 notes, folding them into a plastic bag — no camera, no receipt, no trace. Both transactions were real and both continue to grow. This is the puzzle that this article shall attempt to solve.

Currency in circulation (CIC) in Pakistan closed in fiscal year (FY) 2026 at roughly Rs 11.94 trillion, an all-time high, up 94 percent from Rs 6.14 trillion in FY2020. This happened in the same six years that mobile-banking transactions value grew 47 times over, active digital merchants quadrupled and the government launched a prime minister-led Cashless Pakistan Initiative, with real, verified results. Pakistan is digitising the transfer of money much faster than it is digitising the final act of spending it, and those are two different problems wearing the same headline.

This isn’t a cashless-transition story, but a cash-conversion story. Money moves through digital rails for a few seconds and then gets pulled back out as paper the moment it needs to actually buy something, pay a supplier or settle a property deal.

Pakistan’s digital payments revolution is real, but so is the country’s stubborn dependence on cash. As money increasingly enters the financial system digitally, only to be withdrawn again for settlements, the real challenge lies not with consumers scanning QR codes but with the wholesalers, distributors and property markets, where the country’s biggest transactions still happen in cash…

Pakistan’s digital payments revolution is real, but so is the country’s stubborn dependence on cash. As money increasingly enters the financial system digitally, only to be withdrawn again for settlements, the real challenge lies not with consumers scanning QR codes but with the wholesalers, distributors and property markets, where the country’s biggest transactions still happen in cash…

THE ARITHMETIC NOBODY READS TOGETHER

Pakistan’s central bank publishes CIC data weekly. Looking at the nominal number alone, the story is alarming, as cash almost doubled in six years, growing at an 11.7 percent compound annual rate, comfortably outpacing most measures of real economic activity.

Looking only at CIC as a share of broad money (M2) — which refers to all cash and coins in circulation, as well as all local currency bank deposits data — and the story flips to reassuring, such that the ratio fell from 30.1 percent in FY2020 to 25.7 percent in FY2026, because deposits and M2 simply grew faster than cash did. Both readings are correct, but neither, read alone, tells one what is actually happening to cash dependence in the country.

The more honest test is currency adjusted for inflation. In FY2020 prices, real CIC fell from Rs 6.14 trillion to about Rs 5.37 trillion by FY2026, a genuine 12.5 percent decline in the purchasing power tied up in banknotes.

That is the strongest evidence in the entire dataset that Pakistanis are, at the margin, choosing to hold less cash than they used to. But the same series has a second chapter that gets less attention, as real CIC bottomed out in FY2024 and has been climbing back since, up 12.5 percent in FY2025 and a further 1.1 percent in FY2026.

CIC as a share of gross domestic product (GDP) tells an identical story, as it fell from 12.9 percent in FY2020 to a low of 8.7 percent in FY2024, then rebounded to 9.4 percent by FY2026. The long-run decline in cash intensity is real. The recent momentum is not, as it has stalled and, on some measures, gone into reverse.

This matters because most of the headline decline in cash intensity between FY2022 and FY2024 was not digitisation working, it was mostly inflation working its magic. When consumer prices roughly doubled in three years, the real value of every banknote in every pocket shrank with it, mechanically, regardless of anyone’s banking habits. Now that inflation has cooled, that mechanical tailwind has gone and the underlying trend of real cash creeping back up is what is left standing.

CASH GOES OUT FASTER THAN IT EVER COMES BACK

If the stock of cash is only slowly shrinking in real terms, the flow of cash tells an even sharper story.

ATM withdrawals rose from 492.7 million transactions in FY2020 to just over 1.015 billion in FY2025, more than doubling. Branch cash withdrawals, the larger, more institutional cousin of the ATM trip, grew in value from Rs 4.46 trillion to Rs 11.08 trillion over the same period, a 148 percent increase, even as the number of branch withdrawal transactions merely plateaued.

Add ATM and branch cash-outs together, and FY2025 alone recorded 1.055 billion withdrawal events worth Rs 26.92 trillion, more than 20 million cash withdrawals every week, or roughly one for every eight adults in the country, on a weekly basis.

Now compare that to what came back in. Deposit transactions, the mirror image of a withdrawal, rose only 13.7 percent in count over the same five years that withdrawals rose 99.6 percent. The ratio of deposits to withdrawals, a clean proxy for how much cash re-enters the formal system relative to how much leaves it, collapsed from 15.7 deposits per 100 withdrawals in FY2020 to just 8.9 by FY2025.

Roughly 97-98 percent of everything an ATM in Pakistan does in a given month is still dispensing cash, not accepting it. We have built thousands of machines whose only real function is to push currency out of the banking system and almost none of whose function is to pull it back in.

This is the ‘cash-out loop’ and it is the actual mechanism behind the paradox. A salary lands in a bank account digitally, and so does a government subsidy that lands in a mobile wallet digitally. A remittance clears through Raast (Pakistan’s national instant payment system) in seconds. And........

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