Facts behind depreciation: Foreign currencies worth $12m funnelled out daily

Published: December 19, 2012
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Says his ‘target’ as the minister of state for finance was to bring the dollar’s value down to Rs90.

Says his ‘target’ as the minister of state for finance was to bring the dollar’s value down to Rs90.

KARACHI: 

Minister of State for Finance Saleem Mandviwalla said that foreign currencies worth up to $12 million are being smuggled out of Pakistan on a daily basis, thus weakening the rupee against the dollar.

Speaking to a group of journalists at the Board of Investment on Tuesday, Mandviwalla said the dollar was overvalued in Pakistan, adding that its recent uptick against the rupee was inexplicable given the sound level of foreign exchange reserves in the country.

The dollar was selling for Rs99 in the open market on Tuesday evening.

“We had a meeting at the State Bank on Monday to look for reasons behind rupee’s recent devaluation against the dollar. While some people blamed it on the media, saying it has created unnecessary hype, nobody could actually pinpoint the exact cause,” Mandviwalla said.

80%

Saying that almost 80% foreign exchange, including currencies other than the dollar, being smuggled every day is going to Dubai alone, the minister of state added that the central bank and his ministry were taking urgent steps to control the currency outflows.

“If the customs and the Airport Security Force fail to check the trend, I am going to involve a third agency to ensure that the rupee remains stable,” he said, adding that he was also taking authorities in Dubai on board over this issue.

Referring to some exporters’ practice of holding their dollars back in anticipation of an increase in the value of the dollar, Mandviwalla said speculations were also creating a credit crunch in the market.

“The value of dollar against the rupee is going to come down next week. Those who are indulging in speculation are in for a surprise,” he said, adding that his ‘target’ as the minister of state for finance was to bring the dollar’s value down to Rs90.

Saleem Mandviwalla

Commenting on fears about drying up of foreign exchange reserves, he said the country will be left with enough reserves to survive for up to six months even after meeting all monetary obligations to international financial institutions.

Forex dealers

Mandviwalla said that although the number of registered foreign exchange companies was only in hundreds, roughly 30,000 currency dealers were currently operating in the country.

pakistan has enough

In order to curb the outflow of foreign currencies to the Middle East through illegal means so that dollars could be bought and hoarded in anticipation of the resulting insufficient liquidity back at home, he said a crackdown on unregistered foreign exchange dealers had already begun. “Somebody is trying to bring the government into disrepute. I will not let that happen,” he claimed.

Mandviwalla also hinted at ending the practice of forward booking – ie trading currency while minimising the risk of volatile exchange rates through signing a contract specifying the future rate of exchange – if it was found to have played any role in the recent surge of the dollar against the rupee.

Published in The Express Tribune, December 19th, 2012.

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Reader Comments (15)

  • meekal a ahmed
    Dec 19, 2012 - 2:40AM

    Is this guy for real? And he is a Minister of State?

    Of course there are speculative pressures.

    But if you give them a reason to speculate, they will speculate!

    This is a repeat of the crisis of 2008.

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  • i like it
    Dec 19, 2012 - 4:42AM

    yeah mandviwalla!!!! go save the rupee from the scary currency dragons!!! screw the SBP governor and the market, and please get me some donuts too

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  • Faiz
    Dec 19, 2012 - 8:18AM

    Your are a FOOL sir if you think you can bring the value to Rs 90. All your economic fundamentals are failing and the public debt has been swelling. Your whole band of corrupt leaders in the ruling coalition have to be sent packing and only then confidence would revert.

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  • Huma
    Dec 19, 2012 - 8:37AM

    It is hardly being smuggled out of the country!

    British Pakistani’s who have traditionally invested disproportionately in Pakistan at the expense of their own current living standards in their host countries are now so disillusion with the “anarchy” – prospects, current vs forecast growth, lawlessness, family feuds which can exasperate because of the lawlessness etc. (especially the second generation who are less ‘linked’) in Pakistan that they are selling up their stockpile of inherited and purchased assets (capital flight).

    Secondly, because of the financial crises, a lot of western states have offered citizen incentives in exchange for significant investment. This has encouraged those wealthy enough in Pakistan in becoming increasingly geographically mobile and moving lock, stock and barrel.

    A direct exchange transaction (the $/£) is often not preferable for these sets of people because their Rupee will buy a lot less of that currency. Moreover, British Pakistani’s are liable for a tax charge. So they prefer to keep their money in Dubai (more stable) where they are not taxed initially and so when the exchange rate improves they are more willing and able to pay the taxes in their host countries as their AED will buy a lot more £/$ now.

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  • Dec 19, 2012 - 10:10AM

    The recent uptick in the dollar’s price is not at all inexplicable. There are a few factors at play:

    The declining forex reserves which even the IMF keeps warning about.
    The cut in interest rates that makes holding rupees less attractive than before.
    The higher inflation rate in Pakistan compared to the US inflation rate.

    Making exchange companies scapegoats may be convenient but it ignores the real problem.

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  • Waqar Aslam
    Dec 19, 2012 - 12:27PM

    Great if he achieve this target this is his big achievement

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  • Sheraz
    Dec 19, 2012 - 12:47PM

    Can you achive the target despite presence of corrupt people within this Government

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  • Dec 19, 2012 - 1:27PM

    @Huma: Madam your comments are professional and understandable. Thanx and Salams

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  • Riaz Khan
    Dec 19, 2012 - 1:27PM

    Speculators are making a kill by devaluing PK Rupee! I agree PK Rupee is under-valued and it should be at Rs.90.

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  • sgrr
    Dec 19, 2012 - 2:55PM

    One of the reason is the declining discounting rate consistently by the regulator. Make a graph of both you will find the link for this depreciation.

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  • Hasan Mehmood
    Dec 19, 2012 - 4:21PM

    @Huma:
    {so when the exchange rate improves they are more willing and able to pay the taxes in their host countries as their AED will buy a lot more £/$ now}

    As far as I know all Middle East countries have a fixed rate w.r.t US Dollar and British Pound.
    Maybe you mean to day that by converting Rs into AED, they ensure a fixed amount in British Pound till they finally decide to move it into UK.

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  • Dec 19, 2012 - 4:36PM

    Good to see that atleast Gresham’s law applies to Pakistan! Also, Mr Mandviwala do you know what hypothecated assets means? I thought so…

    Guys look up the build up of $6.27 billion liability on the SBP’s liquidity statement. Plus add negative NFA positions on the M2.

    This is only going to get interesting by the day.Recommend

  • Iqbal saeed
    Dec 19, 2012 - 5:06PM

    You have no idea of what you saying
    you do not know the market mechanism

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  • Dec 21, 2012 - 3:00PM

    @Riaz Khan:
    “I agree PK Rupee is under-valued and it should be at Rs.90.”

    Do you have reasons to believe this or it is your wish only.? . Exchange rates are decided by the economic scenario( current as well as perceived for coming days). Unless inflow of foreign exchange exceeds the out flow neither the minister nor any body else can arrest the down flow of rupee.
    So unless steps required to boost the export , steps to attract FDI are not taken i apprehend nothing can change. Instead of blaming currency dealers/ companies ministers can blame themselves.
    Minister sahib alleges that 80% of so called 12 million USD is smuggled out every day to Dubai ( smuggling means other than banking channel) . How come that this much currency in physical form is there in Pakistan.?. .
    Easy route to escape the responsibility is blaming some one else.

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  • Maverick
    Dec 26, 2012 - 7:47PM

    Why 12 Million Dollars- why not 10 or 15? Where are these numbers coming from?

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