KARACHI, June 25: The State Bank has asked all smaller foreign exchange companies formerly known as money changers to disclose all sale and purchase records twice a month.
Earlier, on Thursday, the central bank suspended operations of a major exchange company for 30 days on charges of ignoring its rules and regulations and selling foreign currencies at higher than displayed rates.
Executives of smaller foreign exchange companies say the SBP has asked them to report to a complete record of sale of foreign currencies to individuals, other smaller exchange companies, exchange companies in A category as well as banks. They say the central bank has also advised them to provide record of purchase of foreign currencies from both individuals as well as exchange companies of A and B category.
Exchange companies in A category are operating with a minimum paid-up capital of Rs100 million whereas smaller exchange companies or those in B category have a minimum capital base of Rs25 million.
Whereas major exchange companies are allowed to electronically transfer funds to and from Pakistan smaller companies can only deal in cash foreign currencies. Of late, the central bank has found some of them making electronic transfers out of Pakistan and warned them to stop it as the practice coupled with another kind of unauthorized outward transfer of foreign exchange had made the US dollar dearer in the market. The central bank inspectors had found that some branches of the exchange companies were making trade related outward remittances of foreign exchange which they were not legally empowered to do.
There are 24 major foreign exchange companies and 33 smaller ones in operation. Whereas major exchange companies are free to make electronic selling of dollars to banks, the smaller ones are not: they can only sell cash dollars. The SBP decision requiring smaller exchange companies to disclose details of sale and purchase is apparently aimed at keeping a stronger vigil on their activities and discourage them from making illegal transfers of foreign exchange abroad.
“The SBP advice makes sense. We all are ready to start reporting the data they have asked for,” said Hanif Gohar, president of the Association of Pakistan Exchange Companies (B). “But I’m afraid what we cannot do is to sell dollar at a fixed price (to keep the rupee stable) because it is a free market and only demand and supply (of foreign exchange) can determine the exchange rates,” he added.
Mr Gohar was referring to an informal advice of the State Bank, requiring smaller exchange companies to purchase dollars at no more than Rs60.40 and selling them at Rs60.50. A senior official of the central bank had issued this advice earlier this month to not only smaller exchange companies but also to major exchange companies after having noticed that some companies were selling dollars at very high rates without any justification thus creating a pro-dollar sentiment which again was bound to push its price to new highs.
He told Dawn that the central bank has also asked all smaller exchange companies to furnish particulars of their chief executives with details about their academic qualifications and expertise. “The central bank wants to ensure whether our companies are being run professionally or not,” Gohar added.
Meanwhile, a senior executive of a major exchange company said the central bank has written letters to all exchange companies in A category requiring them to give details about their rupee and foreign currency accounts and also nostro accounts from May 15 till date.
He said a couple of days ago, the central bank had also demanded data on sale and purchase rates of foreign currencies for a certain period this month.
THE REAL WORRY: All the above moves of the State Bank make a perfect sense when seen in the backdrop of falling foreign exchange reserves of the country. Foreign exchange reserves of the State Bank fell to $9.674 billion on June 18 from $10.231 billion at the end of April showing a decline of $557m or 5.4 per cent in less than two months. Overall forex reserves during this period came down to $12.407 billion from $12.976 billion.
The central bank’s reserves have been on the decline because it continues to sell dollars to banks to help them finance oil import bills. On the other hand, an ever-expanding trade deficit has turned the last fiscal year’s current account surplus into deficit. This has prompted the SBP to plug holes in the open currency market and ensure that the exchange companies increase dollar selling to banks thus adding to overall inflow of foreign exchange into the banking system.
