24 April 2004	Saturday	03 Rabi-ul-Awwal 1425

KARACHI, April 23: The State Bank on Friday finally acted up to contain the rising gap between inter-bank and open market exchange rates that has made a dent into the official transfers of money from overseas Pakistanis.

Senior SBP officials held a meeting with heads of all foreign exchange companies to reach a consensus on how this gap could be reduced. The SBP officials present at the meeting were (i) Managing Director of SBP Banking Services Corporation Mr Liaquat Durrani (ii) Head of SBP Treasury Mr Zafar M. Shaikh and Director of Banking Policy Department Mr Azhar Qureshi.

Sources privy to the meeting told Dawn that SBP officials also warned them that those found involved in illegal transfer of foreign exchange would be penalized. The spread between the inter-bank and open market rupee-dollar exchange rates particularly the one relating to TT or telegraphic transfers has now risen to 80 paisa per dollar from 40 paisa at the start of this month.

This is promoting transfer of money from abroad particularly from the UAE through illegal modes known as Hundi or Hawala - and in turn reducing the volumes of remittances from overseas Pakistanis through official channels.

Figures for official remittances in April 2004 would be out in the middle of next month but in nine months to March this year remittances from the UAE fell 33 per cent to $447 million from $666 million in a year-ago period. Banking experts link this fall partly to the fact that many UAE-based overseas Pakistanis are sending money back home through Hawala.

Heads of foreign exchange companies told the central bankers that the gap between inter-bank and open market exchange rates has increased because of higher dollar demand by gold importers.

Internationally gold prices have fallen to $393 an ounce from $426 an announce at the start of this month prompting investors and jewellers everywhere to buy more. Pakistan is no exception.

"We have seen enough demand for dollars from gold importers this month. That is one basic reason for the sharp rise in the dollar value in the open market," said Muhammad Naeemuddin who heads NBP Foreign Exchange Company.

Chief Executive of H&H Exchange Company Haji Haroon made a similar statement when asked by Dawn to explain the increase in the TT value of dollar in the open market.

Ovais Kalia of Khanani & Kalia Exchange Company also told Dawn that the dollar value has risen in the open market not only reflecting the international trend but also "because of higher local demand particularly from gold importers."

Exchange companies were charging Rs57.90 a dollar TT at the start of this month. Now they are charging Rs58.30. During this time the inter-bank rate has remained almost stable around Rs57.50. Thus the spread between the two rates has risen from 40 to 80 paisa a dollar.

Whereas officials of exchange companies link this to increased demand for dollar from gold importers the latter deny it flatly. "Gold importers buy dollars from Dubai and not from the open market in Pakistan," says Kamran Khan himself a gold importer and a former chairman of All Pakistan Gem Merchants & Jewellers Association.

Under the rule gold importers cannot buy foreign exchange to import gold from the inter-bank market and they have to arrange it on their own.

Kamran Khan and some other jewellers interpret this as a restriction on them for buying foreign exchange even from the open market in Pakistan but others say it only means that they cannot buy foreign exchange from banks. In the past gold importers have frequently purchased dollars from the open market.

Heads of exchange companies say the demand for the dollar has gone up in the open market also because it has gained internationally against pound and euro during this month.

That has prompted many pound and euro investors in Pakistan to hold onto their stocks thereby creating shortage of non-dollar currencies in the market. And that in turn is resulting in lower inflow of dollars from the UAE through export of non-dollar currencies.

Foreign exchange companies collect volumes of third currencies from money changers scattered across the country as well as through their own branches and after meeting the local demand export the same to Dubai. They are supposed to bring in the dollar equivalent of the same back home.

What the executives of forex companies do not say is that some of them mis-declare the amount of the third currencies exported thereby creating shortage of dollars in the local market. The SBP in the past has found some exchange companies involved in this kind of mis-declaring but has been very lenient in taking action against them.