Forward dollar selling hits rupee

The Exchange Companies Association of Pakistan (ECAP) has appealed to the government to direct commercial banks to stop selling dollars on futures counter beyond their availability, as blank selling is causing unnecessary depreciation of the rupee.

“In the recent past, the central bank had to inject $2.5 billion into the inter-bank market after commercial banks failed to deliver dollars to buyers (importers) on the promised future time,” ECAP President Malik Bostan said in a meeting with Finance Minister Shaukat Tarin and State Bank of Pakistan (SBP) Governor Reza Baqir on Sunday.

“Such kind of forward selling did not only take a toll on the country’s foreign exchange reserves but also created a hype on the demand side in the inter-bank market and led to unnecessary depreciation of the rupee against the US dollar,” he said.

The acceptance of the proposal will help the rupee to recover against the US dollar. “The local currency has the potential to recover Rs5 in the near future,” he said.

Bostan told The Express Tribune that Baqir stated that the central bank would consider all suggestions and measures which would help stabilise the rupee against foreign currencies.

Earlier, the rupee remained on a downward trend for most of the second half (Jul-Dec) of 2021 and hit an all-time low of Rs178.24 against the greenback on December 29, 2021 - losing 17% since hitting the 22-month high of Rs152.27 in May 2021.

It recovered almost 1% (or Rs1.73) in the last two working days (December 30-31) of 2021 and closed at Rs176.51 against the US dollar.

Earlier, Finance Minister Shaukat Tarin told banks that they were involved in speculating on the exchange rate and caused an unwarranted drop of almost Rs10 against the US dollar, Bostan said.

He said that the registered currency dealers had provided $13 billion to the government from August 2018 (when Pakistan Tehreek-e-Insaf - PTI - came to power) to November 2021.

The exchange companies have the potential to supply a higher amount of dollars to the government. In 2021 alone, they provided $4.5 billion to the government (by selling excess dollars in the inter-bank market), he said.

ECAP had the potential to fetch workers’ remittances worth more than $10 billion a year if it was provided a rebate of Rs6 per dollar, which was being given to commercial banks to attract inflows, he said.

“Tarin agreed to provide a rebate to the exchange companies similar to the one paid to the banks,” the ECAP president claimed.

Tarin told the meeting that the country needed foreign exchange and exchange companies should play their role in attracting the maximum amount and provide the highest possible amount of dollars to the government, he added.

He said that commercial banks had signed agreements with 300 international money transfer companies to attract workers’ remittances while exchange companies could ink such deals with only five enterprises.

“The central bank should allow ECAP to sign such agreements with around 100 companies to boost the inflows.”

Bostan told the meeting that people had old-design dollar notes issued by the US before 2013. “If the US discontinues such old-design notes, then millions of dollars in possession of Pakistanis would turn worthless,” he said.

“Exchange companies export old dollars and import new ones in exchange but it consumes 20 to 30 days and blocks the working capital of currency dealers.”

If the government allowed the export of old-design dollars on a daily basis, then it would increase supply in the system, he suggested. “Domestic banks also do not accept the dollars issued by the US before 2013,” he said.

“Tarin asked the central bank to allow exchange companies to export old dollars on a daily basis to import new ones.”

Published in The Express Tribune, January 4^th, 2022.

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