KARACHI: The uncapping of the dollar rate has started yielding positive results with panic selling of export proceeds gathering pace in the last three days.

Meanwhile, exchange companies have also begun depositing up to $10 million a day in banks.

Sources in exchange companies and banks said liquidity has improved substantially due to the inflow of export proceeds, higher remittances and elimination of speculative trading.

Exporters who were previously reluctant to sell their holdings have finally realised that the dollar’s speculative level is coming down.

In the last three days, the dollar rate lost Rs7 to close at Rs269.28 on Friday. The price of the greenback touched Rs277 in the interbank market and Rs283 in the open market.

However, higher inflows in both banking and open markets got rid of the speculative prices.

“Exporters fear that a further decline in dollar prices could cost them billions. It resulted in panic selling of export proceeds,” said Atif Ahmed, a currency dealer working in the interbank market.

The exact amount of dollars that exporters are keeping abroad is unknown. Under the law, they have to surrender dollar proceeds within six months of exports.

The currency market hoped that talks with the International Monetary Fund (IMF) would be successful, leading to the inflow of dollars.

“For the last one week, we have been depositing on average $10m to banks every day,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan (ECAP).

Exchange firms were “dry” before the uncapping of the exchange rate. That’s because the managed exchange rate created a huge gap between the interbank and open market dollar rates, paving the way for a strong black market. The illegal market offered higher than the official dollar price and drained hundreds of millions dollars to the undocumented segment. A big share of it was smuggled into Afghanistan.

“Demand in the open market vanished as 90 per cent of the open market consists of sellers as only 10pc clients are buying dollars,” said Mr Paracha.

Buyers in the open market were mostly those people who were doing illegal dollar trading. “They were buying from us and selling the dollars to the grey market,” he said.

Remittances have also started increasing in banks and exchange companies as a direct result of the uncapping of the exchange rate.

“The uncapping was a vital decision… it was the only solution to eliminate the speculative forces causing an artificial hike in dollar prices and massive smuggling,” said Mr Paracha.

Bankers said foreign investment in government papers will also begin as nowhere in the world are such high rates available. The government offers about 17.9pc on treasury bills and Pakistan Investment Bonds (PIBs).

Published in Dawn, February 11th, 2023