In what has been termed a "welcome move", the State Bank of Pakistan (SBP) has allowed authorised dealers to purchase dollars from the interbank market to settle card-based cross-border transactions using International Payment Schemes (IPS).
"In view of representations received from stakeholders, it has been decided to allow authorised dealers to purchase USD from interbank for settlement of card-based cross-border transactions with IPS [such as Visa, Mastercard etc]," the central bank said in a notification Wednesday.
The notification was applicable with immediate effect and would remain in place till July 31, 2023, the SBP said.
Previously, authorised dealers were only allowed to purchase USD for such transactions from exchange companies.
Exchange Companies Association of Pakistan (Ecap) General Secretary Zafar Paracha termed the SBP notification a "welcome move", saying that it would reduce the widening gap between interbank and open market exchange rates.
In recent days, the local currency has been trading over Rs300 against the US dollar in the open market. Dealers reported that the rupee's open market rate was between Rs313-316 per USD on Tuesday. Compared to the interbank closing rate of Rs285.47 issued by the SBP on Wednesday, the difference comes to around Rs27.53-30.53.
Any significant difference between the official and kerb markets' rates encourages transactions outside the formal banking system. The growing difference between the two rates is pressuring the central bank to devalue the currency in addition to enticing Pakistani expatriates to send money home through shady means i.e., hawala.
There is a significant demand for dollars in the open market because of the needs of travellers during the summer vacation and for Haj. There is also an appetite for dollars from businesses since some imports are funded through the open market.
In a statement following the SBP's notification today, Paracha said the SBP took the "right decision" as it would bring down the open market exchange rate by Rs20-25 per USD with time.
"It will also help to reduce the big gap between interbank and open markets. It will also be helpful to enhance the inflows of remittances," he added.