Forex association wants ‘freehand’ to expand exchange market thumbnail

Forex association wants ‘freehand’ to expand exchange market

Forex Association of Pakistan chairman Malik Bostan has said the State Bank of Pakistan’s measures are increasing the black marketing of dollars and pushing people to illegal money changers and Hawala and Hundi traders.

He urged the government to give them a “freehand” to expand the foreign exchange market. The SBP policies have proved to be ineffective in curbing the dollar’s illegal trade and we need to learn these lessons now, he added.

Currently, the dollar is being traded at Rs5 higher than the cash-free market.

Hundi Hawala has also been active and the dollar is being sold at Rs200, Bostan said.

Hawala is an illegal financial system that runs parallel to banking channels. This is how it works: person A has to receive money from person B. Both of them live in different cities and don’t want to use a banking channel for the transaction. In such a scenario, B will tell A to go to C, a Hawala agent who lives in the same city as A and give his Hawala (which means reference in Urdu). C hands the money to A. B makes the payment to D, who is connected with C. The hawala operators charge a fee for their services.

“If we analyze the data from last three months our worker remittances have dropped drastically; it dropped from Rs3b to Rs2.40b,” he said.

This is a big loss for us and the main reason is Afghanistan.

Afghanistan’s monthly import, he said, is $500 million which they import from Pakistan, Iran, and China. But since their reserves have been frozen they have been buying Pakistan’s dollars and making settlements with the black market and Hundi Hawala.

Our import bill in August was $5.5b and now it has ballooned to $8b, Pakistan has been paying Afghanistan $1b every month.

Bostan has suggested that exporters should have been allowed to trade in the Pakistani rupee so it won’t burden the local market.

The problem is how to bring dollars earned from exports from Afghanistan since the banking channels in the country are not working.

The SBP allows Afghan traders to submit payments in advance with banks in Pakistan and get e-forms. There are two problems with this approach: there’s a shortage of dollars in Afghanistan and bringing cash from Afghanistan is a huge risk.

Local traders have figured out a way around for this. They buy dollars from the local market in Pakistan and submit them to banks to obtain e-forms. They receive the payment for such shipments through Hawala. This is for Pakistani products such as wheat, cement etc. that are exported to Afghanistan.

There are several goods that are first imported to Pakistan and then exported to Afghanistan. For such items, people sitting in Pakistan buy dollars from the local market but receive payments for it from Dubai through Hawala.

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