November 13, 2001	Tuesday	Shaba’an 26, 1422

KARACHI, Nov 12: The persistent fall of the dollar in the open market has not only forced currency speculators to sell dollars: it has also led the individuals i.e. the small savers to convert the greenbacks into rupees.

Small savers are those who buy dollars from the kerb market to hold the same for some time to retain the value of their saving.

A State Bank study carried out some time ago had said that the small savers buy only 7 per cent of the total volume of foreign exchange in the kerb market.

The same study had also said that overseas Pakistanis send $8- $10 billion back home every year about 75 per cent of which comes through money changers. In other words $6-7.5 billion come into the kerb market through overseas Pakistanis. But this is not the only source of inflow of dollars into kerb market. There are some others sources as well. These include (i) foreign exchange earned through smuggling that is converted into rupees in the kerb market (ii) foreign exchange coming in through overinvoicing and underinvoicing of goods by importers and exporters (iii) financing of foreign contractors by international donor agencies (iv) inflows of foreign exchange through diplomatic missions (v) inflows through misuse of travel quota—and above all (vi) foreign exchange flowing in through whitening of ill-gotten money whether at home or abroad.

It is difficult to estimate inflows through each of all these sources but leading money changers say total volume of foreign exchange business in the kerb market maybe double the $6-$7.5 billion routed through the market by overseas Pakistanis every year.

But even if this figure alone is taken as the total volume of foreign exchange business in the kerb market then the annual buying of small savers comes to $420 -$525 million (7 per cent of $6-$7.5 billion). Their actual buying may be double this amount if it is assumed that all other sources of the foreign exchange inflow equal the inflow of home remittances in the kerb market.

But there are no official estimates available on how much foreign exchange the small savers might be holding at a time.

Central and commercial bankers as well as money changers can only make a wild guess about it. But all of them say that small savers have the capacity to hold $1000-$10,000 for at least one year. They say a couple of thousands of small savers might be holding even a larger amount.

“The most conservative estimates put the dollar holding by the small savers between $2-$5 billion,” said treasurer of a major state-run bank. “This amount seems not far off the mark,” said a former central banker.

Bankers say—and money changers confirm — that the kerb market is now getting most of the dollar inflows out of this amount.

Since September 11 the dollar has so far lost more than 10 per cent of its value coming down to Rs60.15 for selling on November 12 from Rs67.10 on September 10. In early trading on Monday the greenback even fell below the psychologically important mark of Rs 60. Bankers and money changers say the dollar fell initially on higher inflows of ill-gotten money place abroad. This happened as the US froze bank accounts of those suspected of financing “terrorists” and several central banks in the Europe and in the Middle East tightened regulations to check money laundering.

“Almost simultaneously currency speculators sold the stocks of dollars they had and also suspended fresh buying,” said a central banker. “But now even small businessmen and ordinary people are selling dollars to cap their losses. They are also not purchasing dollars for profit taking.”

INTER-BANK MARKET: The dollar that started falling immediately after September 11 still remains on the slide in the inter-bank market as well. The greenback has so far lost Rs3.80 or 5.8 per cent of its value in the inter-bank market: It fell to Rs61.15 for ready selling on November 12 down from Rs64.95 on September 10.

Bankers say—and central bankers confirm—that the dollar fell initially on the inflows due to the restrictions put on foreign currency abroad by the US and because of tightened regulations on money laundering elsewhere.

But they say lately the greenback has started showing weakness also due to what the bankers call an anti-dollar sentiment.

“The dollar has lost its credibility as being the gainer only. Bankers and businessmen have now seen that it could fall either,” boasted a central banker. So steep had been the decline of the dollar in the inter-bank market that the State Bank had to buy $350 million from banks in October to keep the greenback falling to new lows.

Sources close to SBP say the central bank is still purchasing dollars from banks they find it difficult to quantify the amount.