KARACHI: Demand for the US dollars in the country has fallen to historical lows, said currency dealers whose businesses have shrunk drastically since the spread of Covid-19 in the country four months ago.

“Even normal households in the country who used to keep dollars as savings are not interested in buying the greenback anymore,” said Zafar Paracha, former secretary general of Exchange Companies Association of Pakistan. Paracha has one of the largest exchange companies network in the country.

The US dollar was never so unwanted in the country as it is now but the price is still high in both the interbank as well as open market. Currency dealers said the open market is following the interbank which is the main market and reflects the true exchange rate regime.

“People sell their holdings of dollars or other foreign currencies but don’t buy. One of the reasons is that the general public has lost its savings and is unable to save money or buy dollars for this purpose,” explained Paracha while adding that the pandemic has caused serious financial damage to the general public and small businesses.

He said currency dealers in the open market are depositing on average $10-12 million per day in the banks as public buying has come to a halt.

However, the rupee continues to remain under pressure despite Pakistan receiving record $23 billion remittances in FY20 while foreign investment also increased by 88 per cent the same year.

The flexible exchange rate remained in favor of the US dollar as it gained about 98 paisa against the local currency during the outgoing week. Despite encouraging news about the high inflows which increased the country’s foreign exchange reserves to record three-year high, the dollar continued to exert pressure on the rupee.

Currency dealers at banks said the dollar closed at Rs167.33 in the interbank market on Friday, continuing the bullish momentum.

The demand for the greenback was high in the interbank market but foreign exchange reserves held by the commercial banks have increased significantly. Commercial banks provide dollars to importers for all kinds of goods including petroleum products.

Currency dealers in the interbank market believe that the exchange rate would remain under pressure due to rising demand for dollars from importers who are likely to increase their raw material purchases from the international markets as lockdowns ease. An estimated 35pc of the imports are used to produce goods for exports.

Ever since the emergence of Covid-19, exports from Pakistan have fallen sharply but recovered slightly in the last two months of fiscal year 2019-20. The outlook for exports looks bleak as the major export destinations for Pakistani goods are still experiencing a large scale pandemic outbreak.

Published in Dawn, July 19th, 2020