Exchange companies (ECs) have been allowed to trade 20% of remittances in the open market to ease pressure on the rupee, said the State Bank of Pakistan on Thursday.
The exchange firms had requested Finance Minister Ishaq Dar last week to allow at least half of the remittances to be used by the open market with an expectation that this move would decrease the dollar’s demand and lower its rate in the currency market.
“On our request, the governor State Bank of Pakistan has enabled the exchange companies to sell 20% of workers’ remittances to the general public,” said Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP) in a statement.
These firms were surrendering 100% of employees’ remittances in the interbank market. The exchange firms bring home remittances with the help of money transfer operators in their accounts maintained with banks in the country.
Due to the strong demand for the dollar in the market, the rupee has been under pressure. The open market rate of the rupee against the dollar on Thursday was 227.75.
Bostan and other ECAP members met with SBP Governor Jameel Ahmad and expressed their gratitude for his assistance to exchange enterprises whenever they face difficulty.
The chairman said that the exchange companies were exchanging dollars at the rate set by ECAP.
“Due to the low rate of exchange companies, customers are selling in the black market instead of selling to exchange companies as their rate is 10 to 15 rupees more per dollar than exchange companies,” he said.
“Due to this illegal buying and selling, after September 2022, the business of foreign currency buying and selling of exchange companies has decreased by about 80%. Currently, 1% of customers are selling dollars at the counter of exchange companies, while buyers are 200% more than before,” he said.
The exchange firms suggested that in order to reduce back on spending, the government lower credit card limits and the $10,000 travel limit to $5,000.
This year, more credit cards were authorized which put pressure on the rupee. a person has a credit card, they can transfer money from Pakistan to another country using it for international transactions.
The exchange firms asked Dar, the minister of finance, to review the trading strategy with Afghanistan.
Bostan said every month, about $2 billion goes to Afghanistan from Pakistan in the shape of official and unofficial trade, misuse of Afghan transit trade, smuggling, and through the borders, all of which are burdening Pakistan’s foreign exchange reserves.
“The government should immediately open barter trade local currency letter of credit and trade through banking channel. Cash dollar trade should be banned.”
The government’s $2 billion coal contract with the Afghan government, which demands for 22,000 tonnes of coal each day at a cost of $6 million, is another significant factor.
For a long time, Pakistan has imported coal from Afghanistan. The decision was made to pay Afghani traders in rupees as compensation for the imports.