Action to bring dollar into system: Curbs on forex buying from open market

ISLAMABAD: The government has slapped a ban on foreign currency accounts where foreign exchange is credited through purchasing foreign currency from any un-authorised dealer, exchange company or money changer except as allowed by the State Bank through general or special permission under any law.

The government has estimated that this move would help bring millions of dollars into the official system. At the moment, there is practice rampant in the country to buy dollars through exchange companies, keep them in bank accounts, and seek profit when the rupee gets depreciated against the dollar. With this act, the speculative buying of dollars would be discouraged.

So far the State Bank of Pakistan (SBP) has not brought changes into the Special Instructions. The filers are still allowed to deposit dollars into foreign currency accounts, but if the central bank changes its instructions, this prohibition will come into force.

The SBP also has not brought any changes into the Foreign Exchange Regulation Act (FERA) but after the issuance of new rules 2020, the SBP is authorised to bring changes with the intention to plug loopholes.

The government slapped four prohibitions on foreign accounts including payment of goods exported from Pakistan, payment for services rendered in or from Pakistan, proceeds of securities issued or sold to nonresidents and any foreign exchange borrowed from abroad under any general or special permission of the State Bank. “We have brought changes with the intent to bring dollars which are out of the system,” the Ministry of Finance spokesman said when contacted on Saturday night.

The Ministry of Finance and SBP high-ups claimed that this move was aimed at bringing foreign exchange currencies, especially US dollars into formal banking and financial system.

This restriction would also discourage those who were converting savings from rupees into dollars in a bid to earn profits keeping in view the fluctuation of the exchange rate.

The new changes will also discourage those who purchase dollars and keep in accounts and transfer them abroad.

However, foreign currency brought from abroad and duly declared at the point of entry into Pakistan with Pakistan Customs may be credited in the account.

The Statutory Regulatory Order (SRO) published on Friday stated that the Ministry of Finance issued Foreign Currency Accounts Rules 2020. Under rules governing foreign currency accounts of individuals, the new rules 2020 state that a foreign currency account of an individual may be credited with the remittances received from abroad through banking channels if it does not violate the aforementioned conditions, provide that State Bank of Pakistan may issue any general or special permission for credit to the account. The new conditions will not apply if:

(2) A foreign currency account may be credited through transfer from other foreign individual's foreign currency account.

(3) Proceeds realised on account of profit return and principal amount of investments made in any foreign currency denominated or foreign currency link schemes of government of Pakistan may be credited into the account.

(4) A foreign currency account shall not be credited with any foreign exchange purchased from an unauthorised dealer, exchange company, or money changer except as allowed by State Bank through general or special permission under any law.

However, foreign currency brought in from abroad and duly declared at the point of entry into Pakistan with Pakistan Customs may be credited in the account.

(5) There shall be no restriction on cash withdrawal or transfer from the foreign currency accounts.

Clarification on Foreign Currency Accounts Rules 2020

On 6th October 2020, the Federal Government issued Foreign Currency Accounts Rules, 2020 under the provisions of Protection of Economic Reforms Act, 1992. There has been no change in the general or special permissions given by the State Bank to individuals under the foreign exchange regulations. According to paragraph iv, Chapter 6 of the Foreign Exchange Manual, foreign currency accounts can be fed by remittances received from abroad, travelers’ cheques issued outside Pakistan and encashment of securities issued by Govt. of Pakistan. A foreign currency account of a citizen of Pakistan resident in Pakistan can also be fed with cash foreign currency only if the account holder is a filer as defined in Income Tax Ordinance, 2001.

The recently issued rules aim to provide a regulatory framework for the operation of individual foreign currency accounts. Such a framework represents a continuation of the State Bank of Pakistan’s efforts to strengthen the foreign exchange regime and make it more market-oriented. Looking ahead, SBP will continue to take steps to facilitate greater use of banking channels for individuals to meet all their foreign exchange needs.