RBI WAS PAKISTAN’S CENTRAL BANK FOR NEARLY 11 MONTHS AFTER PARTITION: HERE’S WHY

Partition created two countries in August 1947. It did not immediately create two monetary systems.

For nearly 11 months, the Reserve Bank of India served as Pakistan’s central bank, maintaining its government-banking and currency arrangements while the new country built an institution of its own.

The clearest evidence of this unusual interlude survives on the money itself: Indian banknotes carrying the words 'Government of Pakistan' in English and Urdu.

Why Pakistan needed RBI

RBI had been established in 1935 as the central bank of undivided British India. By 1947, it possessed the offices, personnel and banking relationships required to keep currency circulating across the subcontinent.

Its network included currency offices in Karachi and Lahore, both of which became part of Pakistan after Partition.

Pakistan, meanwhile, needed time to create a central bank, enact the necessary laws, recruit trained employees and establish links with commercial banks. Government accounts and the supply of currency could not be suspended while that work was completed.

A transitional arrangement was consequently introduced under the Pakistan (Monetary System and Reserve Bank) Order, 1947. RBI continued to act as banker to Pakistan’s government and supported its currency system during this period.

RBI’s official history records that it served as Pakistan’s central bank until June 1948.

There was another historical wrinkle. The RBI undertaking this responsibility was still a shareholder-owned institution. It was nationalised only in 1949, after its role in Pakistan had ended.

The Indian notes marked for Pakistan

Pakistan did not begin independence with a newly designed set of banknotes. Indian currency initially remained in circulation.

Existing notes were subsequently modified for use in Pakistan. According to the State Bank of Pakistan’s banknote history, these appeared in denominations of Re 1 and Rs 2, Rs 5, Rs 10 and Rs 100.

'Government of Pakistan' was printed in English near the top. The Urdu equivalent, 'Hakumat-e-Pakistan', appeared near the watermark area.

The underlying designs remained Indian. The additional inscriptions allowed Pakistan to mark the notes with its government’s name without waiting for an entirely new currency series to be designed, printed and distributed.

These banknotes captured the unfinished financial work of Partition. They belonged to Pakistan in circulation and designation, but had emerged from the monetary system of undivided India.

How Pakistan took control of its currency

Pakistan began constructing its own monetary authority within months of independence.

The State Bank of Pakistan Order was promulgated on May 12, 1948, establishing the legal foundation for the country’s central bank. RBI’s responsibility concluded on June 30.

The State Bank of Pakistan opened in Karachi on July 1, 1948, with Zahid Hussain as its first governor.

At its inauguration, Muhammad Ali Jinnah described the institution as an assertion of economic independence. “The opening of State Bank of Pakistan symbolizes the sovereignty of our state in the financial sphere,” he said, according to a speech reproduced by the Bank for International Settlements.

The handover changed the institution in charge before it changed all the cash in circulation. Pakistan still needed to produce and distribute its own banknotes.

The government introduced emergency Rs 5, Rs 10 and Rs 100 notes on October 1, 1948. These were printed by British banknote manufacturer Thomas De La Rue.

On March 1, 1949, the State Bank introduced its first-generation Rs 2 banknote alongside a Re 1 note. The Rs 2 note carried text in English, Urdu and Bengali, reflecting a country that then included East Pakistan.

Pakistan’s banknote transition had therefore taken place in stages: Indian currency, Indian notes bearing Pakistani overprints, emergency government issues and notes produced for its own central bank.

When the two rupees parted ways

Banknotes were only the visible part of the monetary separation. The Indian and Pakistani rupees also remained equal in value after the State Bank of Pakistan opened.

That link broke in September 1949.

India devalued the rupee alongside sterling. Pakistan declined to follow, changing the exchange relationship between the two currencies and triggering a prolonged disruption in bilateral trade.

A Modern Asian Studies examination of the dispute identifies it as a decisive stage in the economic divergence of the two countries.

The sequence reveals how gradually monetary Partition occurred. The political border arrived in August 1947. Pakistan acquired its central bank in July 1948. The two rupees decisively diverged in September 1949.

The notes marked 'Government of Pakistan' survive as evidence of the interval between those events, when two countries already existed, but the money circulating through them still carried a shared past.

2026-08-11T08:17:32Z