KARACHI: The central bank has revised the regulations for exchange companies, mandating that all foreign currency sold to resident Pakistanis for deposit into foreign currency (FCY) bank accounts must now be conducted strictly through account-to-account transfers, rather than in physical cash.
This change seeks to reduce under-the-counter dollarisation, supporting stability in the foreign exchange market and strengthening anti-money laundering (AML) controls.
“In order to promote a cashless economy, it has been decided that, henceforth, all FCY sale transactions to resident citizens of Pakistan for the purpose of deposit into FCY account will be executed through account-to-account transfer,” the State Bank of Pakistan (SBP) said in a circular on Friday.
The SBP has updated the guidelines regarding the sale of foreign currencies to individuals in the Regulatory Framework for Exchange Companies (ECs). These businesses are required to implement this change and notify their customers immediately.
“This policy nudges the FX market further into the formal banking system, reducing the circulation of physical dollars and tightening scrutiny over retail FX flows,” said Saad Hanif, the head of research at Ismail Iqbal Securities.
“By eliminating cash-based deposits, the SBP curbs opportunities for informal market leakage, smurfing, and under-the-counter dollarisation, which will support domestic market FX stability and strengthen AML/KYC controls,” Hanif added.
“The measure should modestly improve transparency of FX demand, compress premiums in the open market, and reinforce the state’s shift toward digital, traceable transactions,” he said. “While operationally neutral for banks, the rule may temporarily reduce over-the-counter dollar demand at exchange companies, thereby easing pressure on the Pakistani rupee in the short run.”
According to bankers and representatives of exchange companies, this move will reduce cash handling risks for exchange firms and incentivise users to utilise bank accounts and electronic transfers, thus promoting financial inclusion in the long term.
However, this change may create challenges for individuals without bank accounts or those who rely on cash, making it more difficult for them to deposit FX. This can also cause a potential shift in liquidity and reduce cash turnover at exchange offices, which may negatively impact revenues for some companies. Bankers warned that if enforcement is inconsistent, informal channels such as hawala and cash networks might adapt, undermining the intended benefits of the initiative.