KARACHI, Aug 16: As the gap between official and open market exchange rates has narrowed down to a nominal few paisa leading money changers say business volume in the kerb has shrunk.

“In July all money changers combined exported about a hundred million dollars worth of third currencies to Dubai. Until recently the monthly export stood at not less than $150 million,” says president of Forex Association of Pakistan Malik Bostan.

Third currencies mean all foreign currencies minus the US dollars. Money changers carry non-dollar currencies to Dubai everyday; sell them and bring their equivalent dollars back to Pakistan. Those exporting non-dollar currencies need to give the State Bank an undertaking that they would bring back home the equivalent amount in US dollars.

Before September 11, 2001, when the gap between the official and open market exchange rates was as high as Rs2 plus per dollar some money changers used to act as hundiwalas for the overseas Pakistanis. They would buy foreign currencies sent back home by Pakistanis living abroad and carry millions of dollars worth of non-dollar currencies to Dubai without bringing it into the SBP notice.

They would sell these currencies for dollars; settle the claims of their customers who used to repatriate ill-gotten money in this fashion; bring some dollars back to Pakistan and encash them in rupees. This was one sure way of whitening of ill-gotten money and it continued mainly because there was a disincentive for those who wanted to send money through official channels as the official exchange rate was always lower by Rs2 or more per dollar than the open market rates.

But in the post-9/11 scenario the gap between the official and kerb rates almost disappeared (at times the dollar sold at a higher price in kerb market as compared to the inter-bank market) and overseas Pakistanis started sending money back home through banks.

“That is why the business volume in kerb market is shrinking,” says Malik Bostan adding that most of 469 licensed money changers are just struggling to survive. “We are working on a spread of a few paisa (between buying and selling). There is not much profit left now in our business,” he said.

Bostan and other money changers say that whereas low export of third currencies is a sure gauge of shrinking business volume in kerb market it also indicates that people have started holding these currencies. Dawn inquiries reveal that in July all money changers combined exported only 17 million pound sterling and 13 million euro to Dubai. Previously they were exporting around 30 million of each currency every month.

“This shows that some people have chosen pound and euro as alternative to US dollar. Part of the total amount that flows into the kerb market in these currencies remains here,” said a money changer based in Saddar.

“The phenomenal rise of the euro up till from April through mid-July made it popular among local investors,” he remarked.

“It is premature to say if pound sterling has also emerged as an investment currency but I will not rule out the possibility of some people switching over from dollar to sterling.”