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Open market sees massive shortage of USD

HAIDER

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KARACHI: Consumers were left running from pillar to post as the open market ran massively short of US dollars on Monday with transactions happening only through “connections”, as some currency dealers Business Recorder spoke to put it, raising questions on the mechanisms put in place to ensure availability at a time when the rupee is largely stable in the inter-bank market.

“There is a shortage of US dollars in the open market,” Zafar Paracha, General Secretary at the Exchange Companies Association of Pakistan (ECAP), confirmed to Business Recorder on Monday.

The shortage comes at a time when the rupee has remained largely stable in the inter-bank, hovering around Rs219-220 for almost a week. In the open market, ECAP quoted rates to be Rs 222.70 (buying) and Rs 224.90 (selling).

Rupee registers back-to-back gains, settles at 220.41 against US dollar

However, the rates proved to be meaningless as multiple exchange companies and dealers reported having no dollars with them. Officials at these companies said the shortage has persisted for almost a week.

“Dollar is traded at Rs232 through unauthorised channels. This is attracting sellers towards the grey market, and they are avoiding formal channels of exchange companies,” added Paracha.

Amid declining foreign exchange reserves, Pakistan has faced an exchange rate crisis multiple times this year with authorities vowing a crackdown on speculators. The promised action comes in tandem with wild swings seen by the rupee that hit record lows in the inter-bank market, and witnessed its worst monthly performance in July in over 50 years.

The arrival of Ishaq Dar at the helm of the finance ministry did trigger a bullish trend in the currency market, with the rupee appreciating nearly 10% in less than three weeks, but it also led authorities to suspect manipulation by banks and exchange companies.

In response, the State Bank of Pakistan (SBP) said at the start of October it will soon complete the investigation into alleged manipulation by commercial banks of foreign exchange operations in the country.

“The investigations are being carried out by the regulator and results might come soon,” the chief spokesperson for the SBP Abid Qamar had said back then.

On Monday, the SBP did not respond to requests for a comment.

Meanwhile, Paracha said that on a regular day, $ 50-60 million dollars are traded in the open market. “However, at the moment, less than $5 million are being traded. The dollar is being smuggled to Afghanistan. Despite central bank’s measures, smuggling remains rampant as it seems that government institutions are not on the same page.”

The currency dealer said the government needs to revisit its trade and immigration policies with Afghanistan and Iran.

“Thousands are coming on a daily basis from the neighbouring countries, leading to smuggling of dollars,” he said.

Paracha added that the government needs to relax rules for exchange companies, as stringent procedural requirements are making customers reluctant to approach the open-market.

On the other hand, Malik Bostan, President Forex Association of Pakistan (FAP), dismissed reports of shortage, saying that the US dollar is available.

“There is no shortage of dollars in the open market,” he told Business Recorder. “The foreign currency is available in ‘A’ category exchange companies but not in smaller ones.”

Copyright Business Recorder, 2022
 

Ssan

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KARACHI: Consumers were left running from pillar to post as the open market ran massively short of US dollars on Monday with transactions happening only through “connections”, as some currency dealers Business Recorder spoke to put it, raising questions on the mechanisms put in place to ensure availability at a time when the rupee is largely stable in the inter-bank market.

“There is a shortage of US dollars in the open market,” Zafar Paracha, General Secretary at the Exchange Companies Association of Pakistan (ECAP), confirmed to Business Recorder on Monday.

The shortage comes at a time when the rupee has remained largely stable in the inter-bank, hovering around Rs219-220 for almost a week. In the open market, ECAP quoted rates to be Rs 222.70 (buying) and Rs 224.90 (selling).

Rupee registers back-to-back gains, settles at 220.41 against US dollar

However, the rates proved to be meaningless as multiple exchange companies and dealers reported having no dollars with them. Officials at these companies said the shortage has persisted for almost a week.

“Dollar is traded at Rs232 through unauthorised channels. This is attracting sellers towards the grey market, and they are avoiding formal channels of exchange companies,” added Paracha.

Amid declining foreign exchange reserves, Pakistan has faced an exchange rate crisis multiple times this year with authorities vowing a crackdown on speculators. The promised action comes in tandem with wild swings seen by the rupee that hit record lows in the inter-bank market, and witnessed its worst monthly performance in July in over 50 years.

The arrival of Ishaq Dar at the helm of the finance ministry did trigger a bullish trend in the currency market, with the rupee appreciating nearly 10% in less than three weeks, but it also led authorities to suspect manipulation by banks and exchange companies.

In response, the State Bank of Pakistan (SBP) said at the start of October it will soon complete the investigation into alleged manipulation by commercial banks of foreign exchange operations in the country.

“The investigations are being carried out by the regulator and results might come soon,” the chief spokesperson for the SBP Abid Qamar had said back then.

On Monday, the SBP did not respond to requests for a comment.

Meanwhile, Paracha said that on a regular day, $ 50-60 million dollars are traded in the open market. “However, at the moment, less than $5 million are being traded. The dollar is being smuggled to Afghanistan. Despite central bank’s measures, smuggling remains rampant as it seems that government institutions are not on the same page.”

The currency dealer said the government needs to revisit its trade and immigration policies with Afghanistan and Iran.

“Thousands are coming on a daily basis from the neighbouring countries, leading to smuggling of dollars,” he said.

Paracha added that the government needs to relax rules for exchange companies, as stringent procedural requirements are making customers reluctant to approach the open-market.

On the other hand, Malik Bostan, President Forex Association of Pakistan (FAP), dismissed reports of shortage, saying that the US dollar is available.

“There is no shortage of dollars in the open market,” he told Business Recorder. “The foreign currency is available in ‘A’ category exchange companies but not in smaller ones.”

Copyright Business Recorder, 2022
Ishaq Dar is a thief and a crook. This is not surprising. The man doesn’t care about the market at all.
 

CrazyZ

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Their is a global shortage of dollars due to USA federal reserve raising interest rates and doing QT to combat inflation inflamed by the Ukraine war. When the elephants fight.....its the grass that suffers. :lol:
 

ghazi52

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US dollars disappear from market​

Traders question mechanism used by SBP to ensure availability of greenback

Usman Hanif
October 29, 2022

steve hanke says pakistan s sovereign bonds have lost more than 60 of their value this year photo file


Steve Hanke says Pakistan's sovereign bonds have lost more than 60% of their value this year.

KARACHI:
The foreign exchange market is facing a severe shortage of US dollars despite the rupee remaining largely stable in the interbank market, leaving traders questioning the credibility of the mechanism in place being used to ensure availability of the greenback. “The declining trend of the dollar has proved to be meaningless as a majority of exchange companies and dealers have no dollars, and this shortage has persisted for almost a week,” said Mian Anjum Nisar, the former president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

He asked the central bank to become more vigilant and take stringent action to ensure the presence of US dollars in the open market. Employers Federation of Pakistan (EFP) President Ismail Suttar commented, “Despite the rupee gaining strength, there is a widespread shortage of US dollar available to money exchangers and dealers in Pakistan. The situation has frustrated importers as they are unable to purchase the greenback against better exchange rates. Attributing the shortage to alternative channels of payments being used by importers, he said, “The government has heavily discouraged imports of late, informally asking the banks of Pakistan to avoid opening any Letters of Credit (LCs) and discouraging them from accepting any forward bookings on the US dollar,” he remarked.

“As a result, importers have been using alternative channels to make sure payments are made to their foreign partners,” said Suttar. He illustrated this giving the example of how importers were buying dollars from the Afghan Transit, and other informal channels, to make payments as these dollar outflows do not show in the current account deficit (CAD). The former president of FPCCI stressed the need for bold steps, especially given the volatile nature of the rupee’s stability against the greenback. He pointed out that, “Currently, limited transactions are being held against the daily regular transactions of up to $60 million dollars in the open market, as it is feared that the dollars are being smuggled to Afghanistan.

Despite the central bank’s measures, smuggling remains rampant indicating that not all the government institutions are on the same page,” he said, urging the government to revisit its trade and immigration policies with Afghanistan and Iran. The rupee’s depreciation was driven primarily by dwindling foreign reserves and uncertainty regarding inflow commitments despite Finance Minister Ishaq Dar’s constant assurances that the rupee was undervalued and would soon recover to its real value of Rs200 per dollar. Nisar further highlighted the decline observed in the CAD for the third month in a row this September.

“It fell to $0.3 billion, less than half the level in August; in Q1FY23, CAD fell to $2.2 billion from $3.5 billion seen in Q1FY22, mainly due to a decline in imports. This decline is a good sign for the South Asian economy already facing dwindling foreign exchange reserves,” he added. The Chief Operating Officer (CEO) of Arif Habib Commodities, Ahsan Mehanti observed that “The unavailability of dollars is a major issue for importers; both essential items and non-essential items are at risk in case of no respite.” “The International Monetary Fund (IMF) program has also bound the State Bank of Pakistan (SBP) to purchasing dollars from the open market for imports, causing the shortage.

Banks have been supportive by avoiding speculations; however, the formal channels should support the informal channels as well for stability, he said. Nisar maintained that having a clear policy to curb volatility in the exchange market is a must and that “The central bank should be fully geared to act and monitor the movements more vigilantly, being ahead of the curve as they have more information than an average market player.” Further, the government needs to relax rules for exchange companies, as the stringent procedural requirements were making customers reluctant to approach the open-market. Amid declining foreign exchange reserves, Pakistan has faced an exchange rate crisis multiple times this year with authorities vowing a crackdown on speculators.

The promised action comes in tandem with wild swings seen by the rupee that hit record-lows in the interbank market, and witnessed its worst monthly performance in July in over 50 years. “The sentiment and dollar supply are expected to improve going forward with the expected inflows from the World Bank and other lenders,” said Tahir Abbas, Head of Research at Arif Habib Limited (AHL), adding that “the IMF review is also scheduled next month which will unlock a $1 billion tranche”.

“Moreover, speculations are rife about Prime Minister Shehbaz Sharif’s visit to China next month, with hopes that it will bring respite to Pakistan in terms of external financing,” said Abbas.

The former FPCCI president added that “Ishaq Dar’s return as finance minister did trigger a bullish trend in the currency market, with the rupee appreciating nearly 10% in less than three weeks, but it also led authorities suspecting manipulation by banks and exchange companies.” Meanwhile, the SBP said that its investigation into the alleged manipulation, by commercial banks, of foreign exchange operations in the country would be completed in early October.
 

epebble

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What is the meaning of Open Market? Can anyone go with Pakistani Rupees to a bank and ask for Dollars or other convertible currency in exchange? That can only happen in fully convertible currencies. I read that LC (Letter of Credit) issuance has been stopped for all non-essential imports. If so, how can they give out foreign currency to anyone for the asking?
 

epebble

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We need to start negotiating foriegn loans in local currency. Otherwise we will never pay them off. Debt trap.
Be careful with that. If the foreign loans are forced to local currency, the lenders have no choice but to convert those local currency repayments into assets. With such a large loan portfolio, lenders will be quickly owning all assets. That has been unpopular in the past.
 

SoulSpokesman

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@Baburfromsarmarkand

We need to start negotiating foriegn loans in local currency. Otherwise we will never pay them off. Debt trap.

Actually flip that around. Once you stop paying them off, the lenders will have no choice but to agree to a steep haircut- the CDS rate would suggest close to 50%.

The flip side is that it will be next to impossible to get any fresh forex loan in future but it will be a blessing in disguise:

1. Pak will be forced to increase its domestic savings rate so that it doesnt have to borrow from abroad.
2. Pak will be forced to increase exports and curb imports so that it can keep CAD at near zero.

Pak will still need to import capital goods for growth and investment but that much amount can be financed by the taller than mountain friend for sure. Plus, friendly Arab countries can be expected to contribute a little bit as well.

Regards
 

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