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KARACHI, Jan 17: The euro lost more than three per cent of its value against the rupee in the open currency market within a week. The single European currency closed at Rs71.50 for spot selling by money changers on January 17 , down Rs2.30 from its January 10 close of Rs73.80.
The UK pound sterling also shed more than 2.4 per cent of its value against the local currency during this week. It closed at Rs103.65 for spot selling, down Rs2.60 from January 10 close of Rs106.25.
This huge fall in the value of the two leading currencies has left many naive and small investors in Pakistan poorer. The fall of euro by Rs2.30 and of sterling by Rs2.60 within a week means a loss of Rs2,300 and Rs2,600, respectively, for those who had to sell one thousand euros or pounds during this week. "There were many such people," confirms head of a big foreign exchange company.
He said the rise of the euro and the sterling had lately lured many new small investors, including people nearing retirement or those retired recently. "Such people were normally buying these currencies in lots of 1,000 and were then making inquiries about how long they should hold them," he said. "I personally saw many such people selling these currencies today."
The euro and the sterling as well as other leading currencies have been on the rise in the international market gaining on the weakening US dollar. This has opened up an opportunity for money changers and foreign exchange companies to find new investors for the two currencies. Naive and small investors, not equipped with investment skills but having enough cash, have fallen prey to their informal marketing techniques and have stocked the two key currencies for profit making. But since they entered the market quite late they had to offload their stocks almost immediately.
Executives of exchange companies say the local demand for the euro and the sterling has risen to an extent that their exchange rates in Pakistan are not entirely dependent upon their movements against the US dollar in world markets. "If the euro gains one per cent against the dollar in New York it gains one-and-a-half per cent against rupee here," says chief executive of H&H Exchange Company Haji Haroon. "The same applies on the pound sterling."
On the other hand, when the euro and the sterling fall in the world markets but local investors have a positive outlook, the full impact of it does not reflect in euro-rupee and sterling- rupee rats.
The executives of exchange companies say that the demand for euro and sterling stems primarily from the Punjab where big landlords invest in these currencies. They say there is some demand also in Karachi, but people here tend to invest more in stocks rather than in currency.
IRAQI DINAR: Iraqi dinar has also shed 33 per cent of its value during the week ending on January 17. It fell to Rs5,000 a million for spot selling by money changers on January 17, down from Rs7,500 a million on January 10. The executives of exchange companies say Iraqi dinar has fallen because of profit-taking by major investors who had bought the currency at a rate of Rs4,000 a million a month ago.
Haji Haroon estimates that at least one billion Iraqi dinars change hands in Pakistan's open currency market everyday. But independent currency experts at leading local and foreign banks say people should not over-invest in Iraqi dinar.
"With the launch of new dinar and demonetization of the old one there seems to be no immediate threat for investors," says treasurer of a foreign bank. "But as things are shaping up in Iraq nobody can predict how strong its currency would be."
The old dinars bearing Saddam Hussain's photo are no more acceptable as a legal tender.
The new Iraqi dinar is being freely traded in the currency markets of Bahrain, Dubai, Egypt, Jordan, Kuwait and Jordan. It gets out of Iraq primarily through smuggling into bordering Jordan. The new Iraqi currency is available here in denominations of twenty-five thousand, ten thousand and five thousand.
