KARACHI, April 1: The State Bank has decided to tighten monitoring of foreign exchange companies to curb smuggling of foreign currencies, which in the past has led to shortage of dollars at several occasions thus weakening the rupee. The Banking Policy Department of the central bank issued a circular on Friday informing heads of all foreign exchange companies that from Monday the SBP itself would supervise export of foreign currencies in coordination with the customs authorities. Earlier, state-run National Bank was doing this job on behalf of the central bank and weaknesses in the procedure for export of foreign currencies had led to smuggling or mis-declaration of the amount of foreign currencies being exported.
Executive Director of the SBP Mr Farhat Saeed summoned heads of about two dozen exchange companies at his office on Friday and warned them of stern action if any of them violated the new procedure for export of non-dollar currencies.
He asked them to keep computerized data of foreign currencies export and refrain from hiding facts from the central bank in which case they would be penalized.
Two senior officials of Exchange Policy Department were also present at the meeting. Sources privy to the meeting said that heads of exchange companies assured the SBP officials that they would behave more responsibly than in the recent past.
Later on, Exchange Companies Association of Pakistan that groups 25 exchange companies met separately and vowed to follow tighter rules put in place for export of foreign currencies, president of the Association Haji Haroon said.
In late afternoon, the central bank notified the new procedure for that the exchange companies will follow from Monday while exporting foreign currencies. These companies export all foreign currencies except the US dollar to Dubai and bring back the equivalent amount of dollars back home.
In the past some of these companies were found to have been involved in outright smuggling as well as mis-declaration of the amount of foreign currencies being exported by them. The practice had resulted in shortage of US dollars in Pakistan’s unofficial market, and that in turn, had also lowered the supply of dollars in the inter-bank market as these companies sell dollars to banks.
The end result was that the dollar had shot up and the local currency had lost substantially against it. Though this practice was not at the heart of the foreign exchange crisis in October last year it was indirectly responsible for a huge fall of 5.6 per cent in the rupee value against the rupee during July-October 2004. But the blame was laid entirely on soaring oil prices in the international market.
Executives of exchange companies say some major companies continue to sell dollars in the inter-bank market but no recent data is available on the volume of such sales. Since the inception of the first foreign exchange companies slightly more than two years ago, these companies have sold into the inter-bank market a much smaller amount of foreign exchange than the SBP used to directly purchase from the open currency market before the start of these companies in early 2002.
The SBP notification issued on Friday says SBP has set up a joint SBP-customs booth at the international lounge of Jinnah International Airport in Karachi that would begin to function from Monday for 16 hours daily on two shifts—from 3: 00 a.m. to 11: 00 a.m. and from 2: 00 p.m. to 10: 00 p.m.
According to the notification, foreign exchange companies would adopt the following procedure while exporting non-dollar currencies from Monday:
1) Each exchange company will report to the State Bank booth at least four hours prior to the scheduled departure time of the flight through which it would be exporting foreign currencies.
2) Representative of the exchange company shall approach the booth with the consignment of non-dollar currencies and a declaration containing details of the denomination and amount of the foreign currencies being exported.
3) The exchange company exporting non-dollar currencies would keep a soft copy of all the required information at its end.
4) The consignment of foreign currencies that an exchange company would intend to export would be opened and counted at the SBP booth in the presence of the company’s representative and customs official and would be verified thereafter.
5) Once the foreign currency is counted and verified, it would be packed by the State Bank staff or by the staff of SBP Banking Services Corporation with the use of vacuum packing machine. (The vacuumed packed bundles cannot be tempered with. Any attempt to temper the wrapping would result in dissipation of the vacuum and the bundle automatically becoming loose. Besides, the date and SBP codes would automatically be embossed on plastic wrapping of each bundle during packing).
6) Packed bundles of currency shall thereafter be combined manually in the form of a bigger bundle of suitable size of plastic wrap, which will be sealed from all sides. Each seal will be signed and stamped by two SBP/ SBPBSC officers and customs official present at the booth.
7) At the same time, all the three officials shall also sign and stamp the exchange company’s declaration. The consignment duly packed, sealed and signed shall be handed over to the representative of the exchange company. Thereafter, the consignment shall be treated as cleared for export.
8) It will be the prerogative to check or verify the foreign currencies being carried by the representative of the exchange company at any stage even after the clearance of the consignment.