Having long been indifferent to a record depreciation of the rupee against the dollar, the federal government has finally decided to take remedial measures to what State Minister for Finance and Investment Saleem H Mandviwalla said reverse the upward spiral of the greenback.
Monday saw the rupee trading at 99.25 against the greenback in the open market, the highest ever devaluation the Pakistani currency had ever seen in the country’s decades-old history. Whereas the regulators tend to assign the foreign exchange reserves-related attributable factors to the historic rupee-dollar imparity, the market sources point at irregularities like the smuggling as well as forward booking of the US currency by the importers at a zero margin.
The sources said ongoing appreciation in the value of dollar was due to the gap in the supply and demand of the dollar created on the local currency market by huge sums illegally being smuggled to foreign countries, particularly the United Arab Emirates (UAE).
Sensing gravity of the situation, State Minister for Finance Mandviwalla called and chaired a meeting of the stakeholders here at the State Bank of Pakistan (SBP) Monday afternoon.
“The meeting would discuss the one-point agenda of looking ways to reverse this process,” the minister told Pakistan Today at a launch ceremony of two British brands here at a city shopping mall.
Mandviwalla confirmed as sources privy to the meeting told Pakistan Today that the federal government, represented in the meeting by the State Minister for Finance and the central bank officials, decided to take “few serious measures” to control depreciation of the rupee.
The sources said the money exchangers in the meeting told the government side that inter-bank was the market which needed to be regulated by the central bank. The currency dealers proposed that the regulator must prevent the banks from forward booking the greenback at a zero rate.
Also the exchangers drew the government towards millions of dollars draining out of the country as a result of smuggling to the UAE countries like Dubai. When contacted Malik Bostan, chairman Forex Association of Pakistan (FAP), confirmed that the government side had decided to look into the money exchangers’ suggestions.
“The forward booking should not be free, instead should be at 100 percent margins,” he said adding the State Bank should ban the opening of LCs at a zero rate for the advance booking of the dollar, as the practice leaves the market short of the greenback.
About the smuggling, Bostan said the State Minister vowed to contact the UAE government asking it not to allow the travelers from Pakistan carry dollars in access of $ 10,000 if they failed to produce a permission letter issued by the SBP.
“The State Bank would issue permission letters to those want to carry dollars,” he said.
Bostan said the volume of dollar in the country’s currency market was fast reducing due to smuggling. “A couple of months ago we used to have a $ 10-15 million daily turnover which now has reduced to $ 5-7 million,” the dealer said.
The SBP would develop an online mechanism to regulate the movement of the dollar, Bostan quoted Mandviwalla as telling the meeting. “Well, few serious measures will be taken to stop dollar slide,” the state minister for finance told Pakistan Today.
Mandviwala said “yes” when asked if his side had decided to focus on curbing the smuggling and forward booking of the US currency to check its shortage on local market.
Also discussed, the sources said, in the meeting was the money exchangers’ long-pending demand for banks-like incentives for the transfer of worker remittances. The money dealers also want the government’s nod for signing agreements with foreign money transfer companies. “We can increase our annual contribution from $ 4 billion to $ 8 billion if given incentives like the banks,” said Bostan
It's about time the government seriously cracked down on smuggling. It would've been better if they didn't wait for the economy to be in shambles and the currency exchange to be so high, but, as they say, "better late than never".
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