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.
At the same time, these ECAP members are to disclose how much of each transaction they bought and sold and at what rates. This will aid in transparency.
Currency Exchange rates fluctuate fast during the day. I have never seen a currency exchange company in Pakistan (Islamabad) displaying the exchange rates on electronic boards for the information of general public. As a matter of rule, they should display such rates outside the premises of their shops or at least these should be visible to the customers clearly from outside through a window if the electronic board is inside. The customers go in and check the rates verbally and these rates are sometimes negotiated on the spot. On top of all that, receipts are hardly ever issued for trasactions. All these practices are unfair, lack in transparency and go to the detriment of the national exchequer as well as the public. This must stop forthwith.
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