Futures sale of dollars reaches the rupee


The Pakistan Foreign Exchange Companies Association (ECAP) has called on the government to order commercial banks to stop selling dollars in futures markets beyond their availability because blank selling leads to unnecessary depreciation of the rupee.

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

“This type of forward selling not only weighed on the country’s foreign exchange reserves, but also created a hype on the demand side in the interbank market and led to the rupee’s unnecessary depreciation against the US dollar, ”he said.

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 said the central bank would consider any suggestions and measures that would help stabilize the rupee against foreign currencies.

Previously, the rupee remained on a downtrend for most of the second half (July-December) of 2021 and hit an all-time low of Rs 178.24 against the greenback on December 29, 2021 – losing 17 % since reaching the 22- month high of Rs152.27 in May 2021.

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

Earlier, Finance Minister Shaukat Tarin told banks they were involved in exchange rate speculation and caused an unwarranted drop of nearly Rs 10 against the US dollar, Bostan said.

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

Foreign exchange companies have the potential to provide a larger amount of dollars to the government. In 2021 alone, they provided $ 4.5 billion to the government (by selling the excess dollars on the interbank market), he said.

ECAP had the potential to recover workers’ remittances worth more than $ 10 billion per year if it were granted a rebate of Rs 6 per dollar, which was given to commercial banks to attract inbound flows, he said.

“Tarin has agreed to grant brokerage firms a rebate similar to that paid to banks,” said the president of ECAP.

Tarin told the meeting that the country needs foreign currency and that the foreign exchange companies should play their part to attract the maximum amount and provide the highest possible dollar amount to the government, he added.

He said commercial banks had signed deals with 300 international money transfer companies to attract workers’ remittances, while foreign exchange companies could only make such deals with five companies.

“The central bank should allow ECAP to sign such agreements with a hundred companies to stimulate inflows.”

Bostan told the meeting that people had old-fashioned dollar banknotes issued by the United States before 2013. “If the United States stops these old-fashioned banknotes, then the millions of dollars in the possession of Pakistanis would become worthless, ”he said.

“Currency exchange companies export old dollars and import new ones in exchange but it consumes 20-30 days and locks up the working capital of the forex traders.”

If the government allowed the daily export of dollars the old-fashioned way, it would increase supply in the system, he suggested. “Domestic banks also do not accept dollars issued by the United States before 2013,” he said.

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

Posted in The Express Tribune, January 4e, 2022.

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