Exchange firms allowed to sell 20pc of remittances in open market

KARACHI: The State Bank of Pakistan (SBP) has allowed exchange companies to trade 20 percent of remittances in the open market to ease pressure on the rupee, industry officials said on Thursday.

Last week, the exchange businesses had requested Finance Minister Ishaq Dar to allow at least half of the remittances to be used by the open market. They expected that the possibility of receiving half of remittances would lessen the demand for the dollar 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 percent of workers' remittances to the general public,” said Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP) said in a statement.

Earlier, these firms were surrendering 100 percent workers’ remittances in interbank market. The exchange firms bring home remittances with the help of money transfer operators in their accounts maintained with banks in the country.

The rupee has been under pressure due to the strong demand for the dollar in the market. On Thursday, the rupee was trading at 227.75 against the dollar in the open market.

Bostan, along with other members of ECAP held a meeting with governor SBP Jameel Ahmad and thanked him for helping exchange companies whenever they face any problem.

Bostan said the exchange firms are buying and selling dollars as per the rate set by ECAP. “Due to low rate of exchange companies, customers are selling in 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 percent. Currently, 1 percent of customers are selling dollars at the counter of exchange companies, while buyers are 200 percent more than before,” he said.

“The exchange companies are facing shortage of the greenbacks. Now we are only selling dollars to customers who want to travel to the US or send health and education fees. Dollars are currently not being sold to customers holding US currency.”

The exchange firms suggested the government to reduce credit card limits and the travel quota from $10,000 to $5000 to curb dollars.

Credit cards had been issued at a faster pace this year, putting the rupee under pressure. A person with a credit card can use it for international transactions, which is like transferring dollars from Pakistan to abroad.

The exchange firms requested the finance minister Dar to re-examine the trade policy 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 is 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.”

Another major reason is that the government has signed a $2 billion coal contract with the Afghan government, which is 22,000 tons per day with a value of $6 million.

Pakistan has been importing coal from Afghanistan for quite a long time. The payments against the imports were decided to be made in rupee to Afghani traders.