KARACHI: The US currency crossed Rs104 in the open market on Wednesday, providing a premium of more than Rs2 per dollar to sellers dealing with the banks.

Though the Forex Association of Pakistan (FAP) provided the closing rate of Rs103.50, a random market survey showed that the rate charged all over the city was in the range of Rs104 to Rs104.20.

Currency dealers emphasised that Haj pilgrims were the biggest buyers of foreign currencies, including Saudi riyals and US dollars.

Gap in the rates of open and inter-bank markets has reached Rs2

“The supply of foreign currencies has dropped sharply to about $6 million to $8m per day from $15m in June,” said FAP President Malik Bostan.

Saudi riyals had a dominant share in the foreign currencies available in the open market. These foreign currencies, other than the greenback, are exported to Dubai and an equal amount of US dollars are purchased and remitted into Pakistan.

The State Bank has recently allowed currency dealers to bring dollars from Dubai directly in their accounts in Pakistan instead of surrendering dollars to a bank and then getting them within a week’s time. The step was taken on demand of currency dealers and for speedy supply of dollars in the open market.

Since maximum Saudi riyals are being consumed by pilgrims, less foreign currencies are available to sell in Dubai for buying and remitting dollars into the country.

Market experts said China has a major role in creating higher demand for the US currency in the local market as Pakistan’s imports from the neighbouring country have witnessed the fastest growth in the last five years.

Opening letter of credits (LCs) for imports from China is problematic since the banking relations with the country have yet to improve.

“Importers have been paying advance money through hundi system for imports from China and they buy dollars from the open market of Pakistan,” said Mr Bostan. He said 60 per cent imports from China are not reflected in the official figures of Pakistan.

Officially, the total volume of imports from China in FY15 was $7.041 billion compared to $4.7bn in FY13. The two years showed sharp growth in imports.

The FAP president said dollars from the open market are also being used to smuggle goods like petroleum products, cements, etc from Iran. Last week, the Exchange Companies Association of Pakistan also pointed out smuggling of dollars to Afghanistan.

Currency dealers said the gap in the rates of open and inter-bank markets has reached over Rs2 per dollar which would certainly boost the illegal transactions of the currency.

“One million dollars can yield an extra Rs2m for somebody if they sell the currency in the open market instead of inter-bank market,” said another dealer.

Currency dealers also noted that the dollar price in Dubai is equivalent to Rs105 which helps the US currency gain against the rupee.

Published in Dawn, August 20th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play