THIS refers to the report ‘Reemergence of grey market brings back memories of 2023’ (Aug 7) which stated that the grey market in cash foreign currencies had reemerged due to the smuggling of dollars to the neighbouring countries.

This is only part of the story. The primary reason for the continuing existence of the grey market has been the mismanagement of the cash foreign currency market in recent years.

In response to the collapse in the rupee’s value, draconian conditions were intro-duced in 2021 and 2022 on the purchase by individuals of foreign currencies from exchange companies, including biometric verification, purchase limits, use of banking channels, and stringent documentation requirements.

In a country where lawlessness and tax evasion are the norm and even so-called professionals, such as doctors and lawyers, deal in cash to evade taxes, expecting buyers and sellers of foreign currencies to follow these onerous requirements met-iculously was nothing short of a folly.

Therefore, the move ended up develo-ping a separate market for foreign currencies. Of course, this ‘service’ comes at a cost, and accounts for the higher rates prevalent in the grey market.

Furthermore, in late 2023, shortly after the dollar’s value in the open market saw a spike, the licence of over a dozen exchange companies were cancelled on account of insufficient compliance with rules and regulations.

The entire market was selling the greenback at the same rate, but official action was directed against some of them. This selective decision unwittingly created a countrywide pool of illegal foreign currency dealers.

If the authorities concerned are really serious about uprooting the grey market in the country permanently, they will have to soften and remove many of the conditions on the purchase of foreign currencies from the exchange companies.

Osama Malik
Lahore

Published in Dawn, September 20th, 2024