KARACHI, June 16: Some leading exchange companies have hoarded dollars anticipating a rise in its price to earn windfall gains. People complain that these companies are not selling cash dollars beyond a limit. The limit ranges from $500 to $1,000 in most cases. Inquiries show that some big exchange companies are even buying dollars from other companies to hoard them and then sell at higher rates.
“I refused to sell dollars to employees of a major exchange company knowing that they would sell these dollars at much higher rates,” said an official of an exchange company run by a bank. “I have started demanding ID cards from buyers of more than $500,” said a senior executive of another exchange company, who also complained that employees of a very large exchange company were out to buy dollars from other companies.
Under the rules, exchange companies must obtain copies of ID cards and other documents from those who buy $10,000 or more. But they may demand ID cards or other documents from buyers of lesser amounts if they doubt that the buying is speculative.
The US dollar trading around Rs60 at end-April in the open market had shot up to Rs61.05 on May 20 when the inter-bank price of the US unit was Rs59.55. The State Bank officials viewed this huge gap of Rs1.50 per dollar in the official and open market exchange rates as very disturbing for the health of the rupee and warned exchange companies to bring it down.
The central bank also sold $10-15 million to some leading exchange companies to help them keep the dollar rates in check. Central bankers say when the spread between the inter-bank and open market exchange rates widens beyond 50-60 paisa per dollar it encourages overseas Pakistanis to send foreign exchange back home through unofficial means and thus belittles the inflow of their remittances through banking channels. Besides, a wider wedge between the official and open market exchange rates also promotes dollarization.
Market sources say that at least three leading exchange companies including the one that is known for its expertise in information technology used the dollars received from the central bank to sell them at very high rates. This frustrated the very purpose of the SBP’s dollar selling i.e. holding down the dollar.
That prompted the central bank to summon heads of major exchange companies on Wednesday (June 15) and tell them to behave or be ready to face music. SBP Executive Director Farhat Saeed warned the erring companies to stop immediately the practice of speculating against the rupee.
Earlier, the department concerned had issued show-cause notices not only to the three erring exchange companies but to all those who had got dollars from the central bank to explain how they have used the same.
The exchange companies sold the dollars purchased from the central bank at very high rates to bulk purchasers because of a rising demand for the US unit. Demand for dollars rose in the open market in May due to bulk buying of the greenback by gold importers. Executives of exchange companies estimate these importers bought at least $100 million.
As the demand has subsided, the dollar has come down to Rs60.60-Rs60.70 in the open market, a market survey shows. But the ECAP daily bulletin claims that the US unit is trading around Rs60.50 in the open market. In the inter-bank market the dollar is selling around Rs59.70. So the spread between the two rates has widened to 90-100 paisa per dollar but the central bank has advised the exchange companies to bring it to 50-60 paisa.
“The gap between official and open market exchange rates would come down to 40-50 paisa a dollar after June,” said Haji Haroon who heads Exchange Companies Association of Pakistan (ECAP) adding that demand for dollars normally increase at the close of the fiscal year in June.
“Right now I am selling dollar at Rs60.50. There is no shortage of dollars. You can come to me and buy as many dollars as you want — if you are a genuine buyer.”
He said the dollar had been on the rise for several reasons including an appreciation in its price against the euro and the pound sterling during the last two months.
The US dollar gained 4.8 per cent against the euro and 3.5 per cent against the pound sterling in April-May this year.
Inquiries reveal that a faster inflow of foreign exchange from overseas Pakistanis through banking channels had also created a shortfall in supply of dollars in the open market.
An increase in the inflow of remittances through banks simply means a fall in inflow through informal ways of hundi or hawala that creates shortage of dollar in the open market.
Inflow of remittances through banks rose 17 per cent in May 2005 to $358 million from $306 million in May 2004.
