Sweeping SBP forex changes to stop Pakistan from hemorrhaging dollars thumbnail

Sweeping SBP forex changes to stop Pakistan from hemorrhaging dollars

The State Bank of Pakistan (SBP) took measures Wednesday to curb the undesirable outflows of the dollar from the Pakistani economy.

The SBP decided to do this after the rupee kept sliding against the US dollar and the greenback hit its highest ever rate at Rs172.80 on September 30.

According to the SBP, people travelling to Afghanistan will be allowed to carry only $1,000 per person per visit, with a maximum annual limit of $6,000.

In addition, exchange companies will be required to conduct biometric verification for all foreign currency sale transactions equivalent to $500 and above and outward remittances. This rule will apply from October 20.

The central bank has said that exchange companies will sell foreign currency in cash and make outward remittances, equivalent to $10,000 and above, against a receipt of funds through cheque or banking channels only.

According to the SBP, whoever does not comply with these instructions shall face regulatory action under the Foreign Exchange Regulation Act, 1947.

A few days earlier, forex expert Zafar Paracha said that one of the reasons behind the rise in the dollar’s price was the smuggling of the currency across the border to Afghanistan.

Paracha said apart from smuggling, the government’s policy to allow travellers to carry $10,000, while crossing the border, is also becoming a burden for Pakistan. Bostan echoed Paracha’s views in this regard.

Traders working near the Pak-Afghan border in Peshawar and Chaman  also said smuggling of the currency is common. Transporters are used for smuggling and their vehicles have various compartments where currency is placed.

While this smuggling is done both ways across the border, currently the destination is mainly Afghanistan, due to the increased demand in the war-torn country.

On September 23, the State Bank made amendments in prudential regulations and imposed a ban on loans for purchasing imported vehicles. The decision was taken to curb imports.

On September 30, it imposed a 100% cash margin requirement (CMR) on import of 114 items, bringing the total to 525. A notification issued by the State Bank of Pakistan stated that the central bank had taken the action to discourage imports and support the balance of payments.

What is cash margin?

Cash margins are the amount an importer has to deposit with banks for initiating an import transaction, such as establishing a letter of credit (LC), which could be as much as the total value of import. Basically, cash margins increase the cost of imports and, as a result, imports decrease.

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