KARACHI, July 27: How many of us know about ‘chamak’ (light)? It is a business jargon used for the telegraphic transfer (TT) of dollars that an exchange company in Pakistan gets from an exchange company in Dubai or elsewhere. Also a funnier name —- kuchra (garbage) -- is given to all the foreign currencies other than the dollar. The US dollar is greenback or `subz patta’.
Under the system, the exchange companies in Pakistan export `kuchra’ to the exchange companies abroad, mostly Dubai. All this `kuchra’ -- a mix of many currencies -- is monetised in dirham value in Dubai. These dirhams are then converted into dollars for which the present rate is 3.673 dirham to a dollar.
The annual turnover of exchange companies’ business is estimated at around $3.5 billion. The exchange companies in Pakistan collect all foreign currencies from those who come to get Pakistani rupees. Mostly they are the Pakistanis who have come from abroad or they have received foreign currency from their relatives.
About three years ago when these exchange companies started business under a State Bank licence, they were allowed to open a Nostro account (Nostro, a Latin word that means my money with you), in an exchange company in Dubai or any foreign country. Except dollars, all foreign currencies are exportable that are transferred to the partner exchange company in Dubai or other place. The dollars are then remitted through chamak to the exchange companies in Pakistan.
On July 8, the State Bank of Pakistan instructed more than two dozens licensed exchange companies to close down their accounts with the exchange companies by July 25, and instead do business through accounts in foreign commercial banks or their foreign currency accounts in Pakistan. These companies have also been instructed to report on transaction-to-transaction basis, with relevant dates of export of foreign currencies, except the US dollar, date of receipt of credit, the name of branch and bank.
As the rupee parity is coming under severe strain because of the deteriorating terms of trade in the last five years, and it was worst in the fiscal year 2005-06, plus a host of other factors, the State Bank has instructed all the exchange companies to sell a minimum of 10 per cent of currencies exported and a minimum of 10 per cent of inward remittance of dollars in the inter-bank market.
“This is a first step towards preparation for steep rise in the international oil price in coming days,” a market analyst said. He pointed out that the oil import bill was mostly financed from the inter-bank market, which might exceed $7 billion in 2006-07 if the government failed to take any effective energy conservation method.
By asking the exchange
companies to carry out their currency business through accounts in foreign or Pakistan commercial banks, the State Bank wants a close and effective monitoring of the transactions that could plug leakages taken place previously in the business through accounts in the foreign exchange companies. By doing so, the State Bank is also complying with instructions of the US government that wants a close watch on all international monetary remissions.
Close watchers of the currency market and a few at the State Bank observed that in the last one year dirham was pegged at about Rs16.20 when foreign currencies were exported to Dubai but was assessed at Rs16.60 and Rs16.70 through inward remission of the dollar. The parity of dollar exceeded Rs61 plus. “Why was this happening and who is plugging the gap of dollar sales than Rs61 when it was costing a company Rs61 plus?”
“There has been a massive over- and under-invoicing in the export and import trade in the past years and touched a record level in 2005-06,” said an active money exchanger. He pointed out that accounts in the foreign exchange companies had become a big source of leakage of Pakistan’s foreign exchange. “Many known Pakistani businessmen used to transfer their foreign exchange illegally to Dubai for buying property in the UAE,” he added.
Munaf Kalia, secretary of the Exchange Companies Association of Pakistan (ECAP), has hinted at the possibility of State Bank’s intervention by way of dollars injection sometimes early next week in the open currency market to check any volatility in the rupee parity with dollar.
On Thursday, the local currency market was abuzz with rumors of central bank’s intervention by way of injection of a few million dollars that was said to have brought down the dollar parity with rupee to Rs60.85 from Rs61.15 on Wednesday. Mr Munaf did not confirm the rumors but indicated that his association was working with the State Bank to keep a close watch on the market. “May be on Monday or after a day or two, the situation may warrant injection of dollars,” he observed.
“We intervene in the market within the framework of a built-in mechanism of our exchange value system,” a well-placed source at State Bank replied without being specific and not elaborating much. He explains that normal fluctuation in the rupee parity is taken in stride, but the central bank intervenes when there is volatility in the rupee parity.
Haji Haroon, president of the ECAP, does not see much of a problem in the currency market when the central bank intervened early this month to put in place a new system for remission of dollars from Dubai and other countries. Through a circular, the State Bank asked all the local exchange companies to close down their all Nostro accounts with foreign exchange companies by July 25. These exchange companies now remit inward and outward foreign exchange through their accounts in commercial banks abroad or through foreign currency accounts in Pakistan.
