KARACHI, March 5: About $1.4 billion flushed out from the reserves of the State Bank of Pakistan within one-and-a-half months, mounting pressure on the melting dollar reserves of the country.

The much-needed dollar reserves are facing a double negative impact as dollar itself is losing against all major currencies which means that the country’s dollar reserves are losing purchasing power.

“The loss of value of the greenback is much higher than the outflow from the reserves for making foreign payments,” said Abid Saleem, a currency dealer in the inter-bank market.

Latest available reports show that with the beginning of new calendar year, foreign payments suddenly jumped and a total of 1.4 billion flushed out between Jan 4 and Feb 15, 2008.

Experts said that the fast pace of dollar outflow was partly because of record oil prices which even crossed $100 per barrel. The State Bank still pays 70 per cent oil bills of the country. Not only the oil prices were rising, but imports have also gone up, thus eating up more dollars.

Experts said that the State Bank had lost its earnings by lending its foreign reserves to the US through purchase of treasury bills, as Federal Reserve has already drastically cut interest rates. Since mid-September, the Fed had cut its benchmark rate by 2.25 percentage points to three per cent.

More cuts in the interest rate are expected in March 2008 which would further reduce value of currency as well as return on treasury bills.

Even after the dollar lost 34 per cent since 2001, major investors and most forecasters say it would weaken further as the Federal Reserve is ready to cut interest rates.

The dollar plummeted to its lowest-ever level last week against euro, Canadian dollar, Chinese yuan and the cheapest in 26 years against the British pound.

Experts said the Federal Reserve is likely to lower benchmark interest rates further in an attempt to reverse economy’s contraction path.

In addition, high oil prices are driving up the already above-trend US trade deficit, flooding the world with more dollars. Finally, the US continues to import more than it exports, increasing its demand for foreign currencies, thus reducing the dollar’s value.

Internationally, large asset holders have started to get rid of dollar-based assets by selling their assets and buying other currencies, including euro, Chinese yuan, Japanese yen and British pound.

Experts have been suggesting the Pakistani government to keep other currencies, like euro and pound as reserves, but the entire dependence on the greenback had deprived the country of the real value of its foreign exchange reserves.

Internationally devaluation of dollar would cost more to the country, especially when oil is over $100 per barrel and dollar is falling fast against all major currencies.

The countries having currencies like euro, pound, yen and yuan have much little impact of oil prices than Pakistan.

Though payment of oil is made in dollars, euro reserves can help buy more dollars from the market, rather keeping dollars in vault for depletion.

Media in the European countries has been reporting that the dollar demand has suddenly fallen and investors were avoiding betting on the US dollar.