KARACHI, July 30: The State Bank of Pakistan has set in a process of unification of foreign exchange market, and started calling on Tuesday the applications for setting up exchange companies with a minimum capital base of Rs100 million.

“With the establishment of these exchange companies, not only the remittance transactions would be fully documented, but this will also help curb the activities of unauthorized money changers and hundi business,” Dr Ishrat Hussain, the Governor of State Bank announced on Tuesday at a press conference.

An ordinance has already been promulgated for the establishment of exchange companies, which unlike money changers would have a much wider scope of business. All these exchange companies would be authorized to deal in foreign currency notes, and coins, postal notes, money orders, bank drafts, travellers’ cheques and transfers.

Besides sale and purchase of foreign exchange to and from individuals, the exchange companies will also sell foreign exchange to corporate bodies for effecting remittances on account of royalty, franchise, technical fee, repair and maintenance.

The State Bank has set a two-year transition period during which the existing money changers would be given time to consider pooling resources among themselves, operating with franchise of other exchange companies or to wind up their business.

“Main objective is to provide a corporate culture to the money changing and remittance business,” he asserted.

“Banks have also been allowed to seek licences for exchange companies and can set up separate booths and counters within their premises,” the SBP Governor said.

At present there are 469 licensed money changers in the country. The highest number — 150 are in Karachi followed by 78 in Lahore and 71 in Rawalpindi. Henceforth, the central bank will not issue any new licence to the money changers. There will be no renewal of licences of the existing money changers after the year 2004.

The SBP Governor has no idea as to how many exchange companies will emerge on the business scene after two years transition period, but expressed the hope that quite a good number of existing money changers will pool their resources to form exchange companies.

All these exchange companies will be subject to routine supervision and monitoring of the State Bank.

“A de facto merger of inter-bank and kerb market has already happened since September last,” the State Bank Governor pointed out while drawing the attention of the journalists to narrowing down of difference in rates of inter-bank and kerb. He quoted the dollar exchange rate on Tuesday of both kerb and inter-bank, which is Rs59 plus and there is a difference of few paisa only.

Dr Ishrat reminded that when the State Bank started flotation of currency since July last year it was announced that a formal merger of inter-bank and kerb will be done in the next one year.

Following the merger of two currency markets, he hoped that people will get a lot of benefit. The exchange companies will now be allowed to sell their surplus foreign exchange in the inter-bank market. The State Bank will continue to intervene in the currency market as and when it deems so by way of purchasing or selling.