The exchange businesses have made the decision to stop artificially maintaining the Pakistani rupee’s (PKR) overvaluation against the US dollar in the open market and allow the rate to fall to its true value.
According to reports, the Pakistani rupee may gradually depreciate until it reaches the level of the grey market in a few days.
A dollar today costs between Rs250 and Rs260 on the illicit market, despite the fact that merchants had artificially fixed the rate at Rs238 until Tuesday.
Exchange Companies Association of Pakistan (ECAP) President Malik Bostan announced the decision to eliminate the restriction on the rupee-to-dollar exchange rate in audio and video communications after presiding over a zoom meeting on Tuesday.
The action would aid in the eradication of illicit currency markets, enhance the flow of foreign exchange to dealers, and make more foreign currency available to the general people (for overseas travel, medical and educational expenses, and other uses).
He claimed that merchants decided to limit the exchange rate willingly and in the best interests of the nation. However, the decision resulted in a cash black market that appeared to be more harmful to the nation.
According to him, people were buying dollars on the open market for Rs 238 and selling them on the black market for Rs 250 to 260 as a means of making a profit. He added that no one was going to the dealers’ counters to sell foreign currency, which led to dwindling supplies on the other hand.
The decision to remove the exchange rate ceiling will help eradicate the black market and restart the flow of foreign exchange from the illegal system into the legal one, according to ECAP General Secretary Zafar Paracha.
The International Monetary Fund (IMF) has also encouraged the government to give up management of the rupee-dollar exchange rate in the interbank market and let market forces determine the rate while taking demand and supply into account.
In light of this, it is predicted that the local currency would also reach Rs250-260 in the interbank market in comparison to the US dollar.
The interbank, open, and black markets are the three official currency markets in Pakistan. Because of this, each of the three markets is offering a unique pricing.
After returning to the ministry in late September 2022, Finance Minister Ishaq Dar tried to maintain the currency’s artificially inflated value at Rs180–200 to the US dollar, which led to the creation of the illicit currency market.
As a result, the rupee gained value for the first time in late July 2022 and for the last time in September 2022, rising to Rs218 in the first few days of October from its record low of Rs240.
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Dar launched a probe into commercial banks, accusing them of allowing market forces to cause an unnatural devaluation of the rupee to Rs240 per dollar.
Jameel Ahmed, the governor of the State Bank of Pakistan (SBP), announced that the investigation against 13 commercial banks suspected of manipulating the rupee-to-dollar parity had been concluded.
He added that the central bank is prepared to move against them in the coming days (instead weeks and months). The action can be a monetary one or a regulatory one.
