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Implications of a Post Keynesian reframing of the Pakistani monetary system

Author

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  • Daniyal Khan

    (Department of Economics, Mushtaq Ahmad Gurmani School of Humanities and Social Sciences, Lahore University of Management Sciences, Pakistan)

Abstract

This paper interprets Pakistan’s monetary system through the lens of a Post Keynesian endogenous money model and argues that the 2022 amendment to the State Bank of Pakistan Act, 1956 has embedded the position of the State Bank of Pakistan (SBP) as an unusually and necessarily accommodationist central bank. On the one hand, this has practical implications. The inability of the Pakistani government to borrow from the SBP has robbed it of a key money creation mechanism and flooded the banking sector with sovereign risk. On the other hand, the replacement of the private sector by the government as the dominant source of credit demand presents an interesting theoretical case in which public credit demand becomes the source of endogenous money creation.

Suggested Citation

  • Daniyal Khan, 2024. "Implications of a Post Keynesian reframing of the Pakistani monetary system," Working Papers 2411, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2411
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    File URL: http://www.economicpolicyresearch.org/econ/2024/NSSR_WP_112024.pdf
    File Function: First version, 2024
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    More about this item

    Keywords

    Money supply; central banking; financial fragility; State Bank of Pakistan; endogenous money;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;

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