KARACHI: Smuggling of foreign currencies, particularly the dollar, has led to a short supply of the greenback in the open market.

As a result, the exchange rate hit the new high of Rs107.60-Rs107.80 on Wednesday, creating a gap of about Rs2.50 per dollar between open market and interbank rates.

In view of the emergency-like situation, the State Bank of Pakistan (SBP) called meetings with currency dealers twice in a week, which shows mounting pressure on the rupee arising out the smuggling of currencies.

Many reasons are being cited for the sudden rise in the open-market exchange rate. Some influential currency dealers believe that Dubai-based magnates are pulling dollars out of Pakistan. Currency smuggling was rampant a few years back, which put Pakistan at the top of the list of investors who stashed away their wealth in Dubai properties.

The gap in the rates of open and interbank markets has triggered hundi/hawala transactions, further hurting export proceeds and remittances.

“Demand for dollar has not exceeded, but a short supply of foreign currencies and smuggling on a large scale have made the situation complicated,” Exchange Companies Association of Pakistan General Secretary Zafar Paracha said.

He added that currencies are being smuggled to Dubai. “I believe smuggling has a direction. (Currencies) are being smuggled for any big project,” he said.

Currency dealers who met the SBP governor on Wednesday were not ready to say anything about the meeting. The SBP did not release any statement in this regard either.

However, two quick meetings with currency dealers within a week reflect the out-of-control exchange rate that is forcing the local currency to shed value against the greenback each day.

“The dollar gained about Rs2 in the last 15 days. It may go further up if the low dollar supply prevails,” said Anwar Jamal, a currency dealer in the open market.

Dealers in the interbank market saw no change in the dollar rate due to the central bank’s intervention that did not allow the exchange rate to exceed Rs104.85.

The country has record foreign exchange reserves despite a slowdown in remittances, fall in foreign direct investment and wider trade and current account deficits.

Currency dealers were cautious about commenting on the hundi/hawala business. However, they noted that the illegal business is likely to show an uptick since the open-market rate is significantly higher than the official rate.

They said governance should be improved to curb smuggling of currencies instead of holding currency dealers responsible for rising dollar rates.

Earlier, under alleged pressure from the government and the SBP, currency dealers’ associations had started feeding less-than-actual market rates in the media, which did not help resolve the real problem.

The dollar price quoted by the Exchange Companies Association of Pakistan on Wednesday was Rs107.45, although the dollar was traded as high as Rs107.80.

Published in Dawn November 24th, 2016