KARACHI: The State Bank of Pakistan’s (SBP) decision to bar exchange companies from ‘home delivery’ of dollars and other foreign currencies is inhibiting large investors from currency trading, forex traders said on Saturday.

It is now compulsory to buy and sell dollars at the counters of exchange companies only — a move which has led to surplus dollars and other currencies.

Currency dealers insist that the State Bank move has made the business risky for large investors.

For making the open market business more transparent, the SBP on July 26 issued a circular with instructions not to move cash from one city to another, and advised companies to open bank accounts for transfer of money. The step was taken after Pakistan was included in the grey-list by the Financial Action Task Force (FATF).

“Large investors have left the open market free from their influence which converted the currency market dominated by sellers while buyers have been declining,” said Malik Bostan, President Forex Association of Pakistan.

Anwar Jamal of Glaxy Exchange said, “The new condition is a big hurdle for large investors as they don’t want to take risks to bring their cash at the exchange company and take back whatever they buy.”

“Market is surplus with high inflows of up to $15 million per day from Dubai while we have been depositing about $12m to $15m per day in banks,” said Secretary General Exchange Companies Association of Pakistan, Zafar Paracha.

While sellers have increased as Eidul Azha nears, local buyers have also entered the market in large numbers, he said. “At least $20m are being deposited in the banks every day by people who buy dollars from open market at Rs122, deposit it in their accounts and encash at inter-bank rate of about Rs124 per dollar,” said Paracha.

Seemingly the State Bank is satisfied with the situation as the open market dollar rates are below inter-bank rate and there is no readjustment as per market rate.

During FY18, the State Bank adjusted inter-bank dollar rates thrice in the wake of higher open market dollar rates.

However, the last adjustment of four per cent could not sustain and dollar price in inter-bank market fell back at Rs124 from Rs128.5 and is continuing to fall slightly each day.

Currency dealers said cash transactions only through banks helped the exchange rate positively as open market trading goes through banking records.

At first, the currency dealers were against the action taken by SBP on July 26 which stopped cash movement from one city to another. Initially they said shortage of cash (local currency) drastically cut trading volume in the open market and dollar rate started falling.

However, now they maintain that with the help of State Bank all commercial banks are ready to open accounts for currency dealers. Earlier, opening a currency account for small cities was difficult for currency dealers so they used to transport cash in vans.

Published in Dawn, August 19th, 2018