SBP introduces new exchange rate mechanism for open market transparency

The State Bank of Pakistan (SBP) has unveiled a new mechanism to enhance transparency and credibility in the compilation of open market exchange rates.

The initiative aims to streamline the process of issuing and publishing end-of-day open market exchange rates for selected foreign currencies.

The Exchange Companies Association of Pakistan (ECAP) will now publish daily end-of-day open market exchange rates for six major currencies, including the USD dollar, euro, pound sterling, Japanese yen, UAE dirham, and Saudi riyal.

To ensure transparency, the SBP has outlined a mechanism for compiling open market exchange rates. The ECAP has been instructed to implement this mechanism, with the deadline set for December 26, 2023.

Under the new system, Exchange Companies (ECs) holding at least 75 percent market share will provide daily exchange rates for the six major currencies to ECAP. A minimum of eight ECs must contribute to establish a representative end-of-day rate. The SBP will select contributing ECs based on their business volumes, and the list for the next calendar year has already been issued.

Contributing ECs will submit buying and selling rates for the six major currencies prevailing in the market to ECAP's dedicated email. The submission time is set from 4:00 pm to 4:30 pm. ECs must quote closing levels, not averages or stale rates, designating a focal person for rate submission.

Any EC failing to submit rates for five business days in a calendar month must provide justification to the SBP via ECAP. In the event of the suspension or cancellation of a contributing EC's license, the SBP may nominate a replacement based on market share.

ECAP will calculate the simple average buying and selling rates for each currency and disseminate the data to stakeholders by 5:00 pm. ECs will use the mid-rate of the ECAP-published end-of-day rates for book revaluation, including regulatory exposure calculations. The ECAP is responsible for ensuring the accuracy of the published data.