KARACHI: For the first time in the country’s history, exchange companies have said there are removing a self-imposed cap on the selling and buying of dollars in the open market from Wednesday (today) — a system they said has created a black market offering better returns, stifled inflows from official channels and reduced remittances sent by Pakistanis working abroad.

The announcement was made after a detailed meeting of exchange companies from across the country on Tuesday. Their representatives will also meet top officials of the State Bank of Pakistan (SBP) — the regulator of the exchange companies — in the morning today to discuss the matter.

“We have decided to remove the cap on the dollar rate in the open market to bring the rate on a par with the grey market,” Malik Bostan, the chairman of the Exchange Companies Association of Pakistan (ECAP), said in a video message.

Removing the cap would help counter the grey market and improve the availability of dollars in the open market, he said, adding that sellers had disappeared due to this price difference.

Bankers believe that this decision of the open market might lead to a single exchange rate in the country and thus help fulfil the IMF’s demand for a stable exchange rate.

Exchange companies to meet SBP officials; Bostan says decision to bring dollar rate on par with grey market

The exchange rate has been primarily hit hard by a steep decline in the central bank’s foreign exchange reserves, which have shrunk to $4.6 billion. Currency experts say the rupee has been falling “despite being managed” by the SBP.

Amid a shortage of dollars, the gap between its rates in the interbank and open markets has significantly widened, drastically hurting the economy and diverting remittances from the legal banking channel to the grey market, which has been offering the dollar at Rs270 against Rs30 in the interbank market and Rs240 in the open market.

The wide difference has also hit the remittances sent by Pakistanis working abroad, as they get much high rates via informal money transfer channels like hawala.

Some experts have hinted that the shortage of dollars could cause rationing of petrol and diesel in the next two to three months, ultimately hitting the trade and industry and even the agricultural sector, which needs diesel during the harvesting season.

The exchange companies’ Tuesday meeting was chaired by Mr Bostan, and was also attended by ECAP General Secretary Zafar Paracha.

In a detailed statement issued after the meeting, Mr Bostan said the decision to cap the dollar rate had proved to be “negative”. He said, “Instead of falling, the dollar rate increased, resulting in the unavailability of the greenback in the market, which also gave birth to the black market.”

He lamented that citizens that wished to buy dollars for travelling or funding their education and health expenses were not able to do so and had to turn to the black market.

He said that the situation had created a “panic in the market”, leading the government to believe exchange companies were “deliberately blackmailing” them.

“Keeping these things in mind, we made a decision,” he said, adding that the association is scheduled to meet central bank officials today at 9am.

“We have a meeting with the SBP deputy governor tomorrow (Wednesday) morning as the governor is in Islamabad,” Mr Bostan said. “We will take them into confidence over the decision […] the cap imposed in the national interest has proven to be negative.”

He said the black market needed to be curbed, and the only way to do this was to remove the cap on the dollar rate.

“When people are able to purchase dollars easily, the rate of the greenback will automatically start to decrease,” the ECAP chairman said. “Remittances will also increase when the intermarket and the pre-market rates become the same.”

ECAP’s Mr Paracha said the exchange companies were already selling dollars at Rs255 to banks for credit cards, and common Pakistanis were suffering from this. Removing the cap “is the right decision, and I am sure this will bring stability to the exchange market”, he said.

Published in Dawn, January 25th, 2023