KARACHI, Oct 10: The US dollar has shed Rs2.55 or around four per cent of its value against the rupee in the inter-bank market since September 11 when terrorist attacks on New York and Washington changed the world. In the open market the dollar has lost Rs3.50 or 5.2 per cent of its value against the rupee.

This has also narrowed the gap between the inter-bank and open market exchange rates from Rs2.15 per dollar on September 10 to Rs1.20 on October 10.

The dollar on Wednesday closed at Rs62.35/Rs62.40 for ready buying and selling in the inter-bank market: In kerb it finished at Rs63.40/Rs63.60. Thus the difference between the inter-bank and kerb rate stood at Rs1.20 per dollar.

On September 10 the dollar had finished at Rs64.90/Rs 64.95 in the inter-bank market and at Rs67.00/Rs67.10 in the kerb: The spread between the two exchange rates was Rs2.15 per dollar.

Bankers and currency dealers cite several common factors for the decline of the dollar. But perceptions differ on whether the rupee would remain stable in the days to come.

Central bankers smile with smug satisfaction. Currency dealers smirk.

“Regardless of the reasons for the fall of the dollar the fact is that the current exchange rate is sustainable,” says Foreign Exchange Advisor of the State Bank, Zafar Shaikh.

“The dollar is priced well in both the inter-bank and the open market. I would not say it is still overvalued but in any case it is not undervalued.”

But does it mean that the dollar has sloughed its extra weight and is unlikely to recover the losses it has suffered in the past one month? Central bankers say that depends on how market players behave.

“If banks and their customers make no speculations the dollar may stay for some time where it is now,” says one of the central bankers who refused to be identified. But this seems too naive. If the dollar is going to stay put the economic fundamentals must also remain intact.

Indications are that they would not. Commerce Minister Razak Dawood has said that exports would see a decline of $1.4 billion. He has said that it is the US recession and the post-September 11 situation that are going to take their toll on Pakistan exports.

Exports are the biggest source of foreign exchange earning for Pakistan but the imports being larger the country faces a trade deficit. The second source of forex earning is home remittances or the foreign exchange that overseas Pakistanis send back home.

Here again the country gets only $1 billion per annum which are routed through official channel. The amount is insufficient even to finance the trade deficit which stood at $1.2 billion in the last fiscal year and is set to rise further during this year.

Central bankers say more than 3.5 million Pakistanis send back home no less than $7-8 billion every year but the major chunk of it comes through unofficial channels. For a debt-laden country like Pakistan that has to borrow money even for retiring external debt it seems appropriate to attract most of the home remittances through banking system. But that becomes difficult when there is a large spread between the inter-bank and open market exchange rates. Everybody wants the right price for his dollars or riyals.

This is why the economic managers and the central banks feel happy over the recent narrowing of the spread. They are confident it would result in much larger inflows of home remittances than in the past. That is if the present spread does not expand again in the days to come.

“If the State Bank can check speculators the spread may remain at the present level,” says the president of Forex Association of Pakistan Malik Mohammad Bostan. But he is not ready to admit that many of the 400 plus money changers are themselves speculators of sort. Besides they provide a safe conduit to drug money and all that.

The State Bank is busy framing rules for converting 400 plus big and small money changers into a handful of foreign exchange companies that would be allowed to handle home remittances — and maybe other things.

Bankers say the creation of foreign exchange companies would result in unification of the inter-bank and kerb market leaving behind the question of how to reduce the gap between official and kerb exchange rates.