Granting licenses to banks for setting up exchange companies is seen as a threat to the existence of traditional exchange companies, and authorities are reportedly under pressure to close down exchange companies.
Some banks in Pakistan, including MCB Bank, UBL, and Meezan Bank, have already announced plans to launch their own exchange companies. This move is causing concern among existing currency dealers and exchange companies.
Currency dealers argue that closing down exchange companies could lead to the emergence of a “grey market” for foreign exchange, which might be less regulated and more prone to manipulation. They accuse banks of manipulating exchange rates in the past, with some banks allegedly buying dollars from exchange companies and then charging customers at higher rates, artificially inflating the dollar rates.
“Authorities said that they are under pressure to close down exchange companies business since they are held responsible for the increased dollar rate,” said Malik Bostan, the chairman of the Exchange Companies Association of Pakistan (ECAP). He termed it completely a wrong approach, by stating that in case of closure of exchange companies, a grey market will appear more strongly.
“The State Bank failed to punish those banks since the banks ‘foreign investors’ compelled the authorities to stop the search for banking crime and no punishment,” hold Zafar Paracha, the general secretary of ECAP.
It is mentioned that a significant portion (80pc) of Pakistani banking shares are held by foreign investors, particularly from the Middle East. This has raised concerns that banks under foreign control could exploit exchange rates.
There is a debate between those who believe that conducting foreign exchange transactions through banks would be more transparent and those who are concerned that it could lead to manipulation.
It is notable that the State Bank of Pakistan (SBP) has awarded in-principle approval to 5 proposed digital retail banks. This move is aimed at fostering innovation, financial inclusion, and affordability of digital financial services.
BP Governor Jameel Ahmad assures the financial sector of the central bank’s commitment to making the financial system more inclusive, innovative, and responsive to citizens’ needs.