KARACHI, Jan 2: Though the State Bank of Pakistan has stopped direct buying of foreign exchange from money changers since July last its indirect purchases continue.

Money changers say they are still selling to the central bank 80 per cent of the dollar equivalent of the exports of non-dollar currencies. They retain the remaining 20 per cent for local use.

Money changers export non-dollar currencies including euro/ pound sterling/UAE dirham and Saudi riyal etc. to Dubai through Forex Association of Pakistan. From there they get dollars in return. Under an agreement with the SBP they are bound to sell 80 per cent of the dollars earned through this export to the central bank and get rupees in return. This is still going on. Sources close to SBP say this rather indirect buying of dollars by the SBP helps it suck in part of the foreign exchange inflows in the kerb market. Until June 2002 the State Bank was making direct purchase of foreign exchange from the open market but in July it discontinued this practice after the IMF had raised objections on it. It is not clear how the IMF views the indirect dollar buying by the SBP from the money changers.

In July-September 2002, the SBP purchased $133 million from the money changers through this arrangement that formed part of its overall foreign exchange buying of $1.278 billion: it bought the remaining $1.45 billion from the inter-bank market. The central bank made no direct purchase from the money changers as it had stopped this practice from July 1.

With the stage now set for the foreign exchange companies to start operations, money changers are not sure if this indirect buying of dollars would continue. “We are also not sure if we would be able to get the desired exchange rates from the State Bank,” said a leading local money changer who declined to be named. His fear is not unfounded. Sources close to SBP say they will have to review their policy of buying the proceeds of the currency exports from the money changers to give some incentive to the foreign exchange companies.

Two local money changers and a subsidiary formed by state-run National Bank have so far got the SBP licence to start operation as exchange companies. These are: (i) H&H Exchange Company (ii) Khanani & Kalia Exchange Company and (iii) NBP Exchange Company. They are likely to start operations anytime this month.