KARACHI: On Thursday, the availability of greenbacks in the open market seems to be scarce. In an effort to gain insights, Profit engaged with several foreign exchange dealers to assess the situation. While the supply of dollars is not necessarily limited, the currency dealers appear to be refraining from selling to anyone. Despite their willingness to purchase the dollars at a rate ranging between Rs 275-280, none of the foreign exchange dealers are currently willing to part with their stock.
This is not the first time that such a situation has occurred where the Pakistani Rupee had appreciated against the greenback but exchange dealers were not willing to sell greenbacks. In fact, a similar situation occurred a month ago when the State Bank of Pakistan granted banks the authority to purchase US dollars from the interbank market for settling card-based cross-border transactions with International Payment Schemes (IPSs).
Rupee appreciation against greenbacks in June
The central bank implemented this measure with the objective of narrowing the disparity between exchange rates observed in the interbank and open markets. Prior to this change, banks had been purchasing dollars from exchange companies for the past 17 years.
The open market rate for US dollars had surged due to high demand from travellers, students, pilgrims, and banks. Banks were buying dollars for settling card-based cross-border transactions with IPSs. Besides, supply had decreased significantly because of the devaluation of the Pakistani currency and better rates of the dollar in the unofficial market.
As banks were granted the option to purchase and settle payments through the interbank system, the demand for trading in the open market further dwindled. This placed pressure on exchange companies and contributed to the appreciation of the Pakistani rupee against the US dollar within the open currency market.
However, even back then Profit reached out to different foreign exchange dealers and sources who contended that the rupee’s appreciation was artificial. These sources revealed that currency dealers were solely interested in purchasing dollars at the prevailing rate but were not engaging in any selling transactions. Consequently, the displayed rate in the open market was deemed incongruous with the actual prevailing rate.
A similar situation persists today, where despite the availability of dollars, currency dealers are focused on buying rather than selling. Currency dealers are presently awaiting a resurgence in the dollar rates before opting to sell at more favourable rates.
Rupee appreciation following the agreement with IMF
In the wake of the agreement with the International Monetary Fund (IMF), the Pakistani rupee orchestrated an unexpected resurgence against the US dollar, surging by more than Rs 11 on Tuesday.
The first day of trading in the open market following Pakistan’s Standby Agreement (SBA) with the IMF, which secured a $3 billion funding package, instilled a sense of economic stability, which was reflected in the improved value of the rupee.
Consequently, dollar hoarders flocked to the exchange companies to sell their holdings. However, owing to ongoing bank holidays, only a handful of exchange companies possessed physical cash in Pakistani rupees, and even their reserves were limited.
Thus, most exchange companies faced constraints in their ability to purchase dollars due to a shortage of Pakistani rupees. The scarcity of cash rupees stemming from the bank holidays created an opportunity for several money changers to independently set their own rates for purchasing dollars, which ranged from Rs 275 to Rs 285. According to exchange companies, there was a surplus of sellers but a notable absence of buyers for dollars.
Forex should be controlled by the government through known commercial banks in the country. Even the daily rates should be fixed at government level. These private money changers are creating problems for the people. They are making billions in a single day. Most of these transactions are undocumented.
strongly agree with Mr. Advanced Aziz.
I agree with Adnan Aziz as well. There is a monopoly by these exchange company. I personally know an owner of the large exchange companies which hoard dollars at their private residence and do dealing off the books. This can easily be regulated if only banks are permitted to exchange foreign currencies.
Exchange companies are hoarding dollars for elite people and elite institutions of Pakistan. Dishonest profiteering everywhere as cost of common public.
Most dishonest is state of Pakistan when it forcibly sets 25-50% lower unfair conversion rate of remittances at SBP defying market norms. You can’t feed cheap dollars to money launders, importers, terrorists and corrupt people by pickpocketing Overseas Pakistanis & Exporters.