Although quite late in the day, the State Bank of Pakistan (SBP) is finally waking up to the undue and unexplained pressure on the rupee’s exchange value. This is evidenced by a one-two punch the central bank delivered to the grey market on Tuesday. The first of these was the announcement that the SBP is gearing, jointly with the FIA, to initiate action against illegal currency exchanges across the country. The second and the more intrusive measure, however, was tightening the curbs on forex spending by individuals, whether physically carried when going abroad or through electronic means while staying in Pakistan or abroad. The case of illegal currency exchanges is open and shut. Under the Foreign Exchange Regulation Act, 1947, it is not lawful for anybody to engage in foreign exchange business in Pakistan except banks and duly registered exchange companies. What is more, the sector operates under the watchful eye of the SBP. Illegal currency exchanges or moneychangers, on the other hand, operate in a legal void, and the foreign exchanges that gravitate to them end up in the globally connected forex black market. This has undesirable consequences, and not just for the rupee’s exchange value.
The matter of curbs on forex spending is less cut and dried, especially as it occurs adjacent to property rights. The annual forex spending ceiling of $30,000 is less problematic, especially as there are ways for those with special needs beyond this ceiling to secure authorization for the requisite amounts. But the $5000 limit for every exit will certainly cause a lot of unintended pain. Pakistanis working abroad, who are net earners rather than spenders of forex, are unlikely to be hurt by this ceiling. Nor will the more well-heeled, who carry plastic money in their pockets, take a hit. That leaves us with those on religious pilgrimage, students, medical-needs travellers – and smugglers. One wishes the authorities had anticipated the various scenarios and built a solution into the system. Could there be on-the-spot special authorization for a special case? Or would it be safer to have any such people approach a desk or helpline a few days in advance? Only those charged with the enforcement of the limit can decide, especially because any currency smuggling mules out there will inevitably disguise themselves as deserving cases.
Incongruous bank card spending is quite another matter and it may indeed indicate wrongdoing in many cases. Not many of us need to import merchandise in excess of $30,000 a year via ecommerce, and it is difficult to understand why a legitimate business would indulge in such a practice with all means of formal business transactions on hand. These measures to curb the flow of hard currency to the grey market come in the wake of a running probe ordered by the government into the alleged smuggling of hard currency via overland routes to Afghanistan. An old hand at his job, Finance Minister Senator Ishaq Dar has his eyes on all the relevant data, and he is convinced that the rupee’s prevailing exchange value does not make sense. The only possible explanation for this pressure on the rupee is that some hard currency is slipping out of Pakistan’s economy unseen after flowing in, and Afghanistan is an obvious destination for such outflows. Although some officials maintain Pakistan’s western neighbour is unlikely to attract any substantial sums of hard currency given the state of its economy, they fail to consider the possibility of Afghanistan, being a hinterland unconnected with the global financial system, becoming a hotbed of the global currency black market. Finally, there has been no indication that the authorities are looking into the possibility of cryptocurrency transactions being used to exfiltrate currency from Pakistan. The task is going to be tough given that cryptocurrencies are by definition resistant to regulation. But large-scale hard currency exfiltration was probably why China recently decided to ban all cryptocurrency transactions, and Pakistan will choose to ignore that possibility at its peril.