In Pakistan, the money supply is managed and controlled by the State Bank of Pakistan (SBP), the country's central bank. The SBP plays a crucial role in ensuring the stability and smooth functioning of the financial system. Here's how the SBP supplies money:
1. Printing Currency: The SBP is responsible for printing and issuing Pakistani Rupees (PKR). This is the physical form of money that circulates in the economy.
2. Lending to Banks: The SBP lends money to commercial banks through various mechanisms, such as repo auctions. This allows banks to increase their lending capacity, ultimately increasing the money supply.
3. Buying and Selling Government Securities: The SBP can influence the money supply by buying or selling government securities (like bonds) in the open market. Buying securities injects money into the economy, while selling securities removes money from circulation.
4. Setting Reserve Requirements: The SBP sets minimum reserve requirements for commercial banks, which dictates the percentage of deposits banks must keep as reserves. By adjusting these requirements, the SBP can impact the amount of money banks have available for lending.
5. Managing Foreign Exchange Reserves: The SBP manages Pakistan's foreign exchange reserves, which play a vital role in stabilizing the currency and supporting economic growth.
In summary: The SBP is the primary source of money supply in Pakistan. It uses its various tools and policies to manage the money supply and ensure a healthy and stable financial system.
