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Friday, June 7, 2024

Where are the dollars going?

Previously, bilateral trade between Pakistan and Afghanistan was conducted in US dollars; however, this is now done in Pakistan rupees. 

Rupee against the US dollar faced significant depreciation for a long time due to serious economic and political instability prevailing in the country. In August, Rupee started to appreciate against the greenback, and it was expected that the revival of International Monetary Fund (IMF) programme would bring stability in the exchange rate.

On 31st August, the State Bank of Pakistan (SBP) received proceeds of USD 1.16 billion (equivalent of SDR 894 million) after the IMF Executive Board completed the combined seventh and eight review under the Extended Fund Facility (EFF) for Pakistan.

However, Rupee could not meet the expectations and appreciated by 0.07 percent against the US dollar on 1st September only and then it has been depreciating since today, quoted at 220, a depreciation of Re0.14 or 0.06 percent against the greenback, during intra-day trading. On Monday, the rupee settled at 219.86 after declining by Re0.88 against the greenback.

Read more: Dollar flight: plane with 245 suitcases full of dollars took off

Alarming is the difference between open market and interbank exchange rate of Pakistani Rupee against the US dollar today that is hovering around Rs. 13. On Tuesday 6th of September 2022 at 12:26 PM, the current USD to PKR buying exchange rate is 233.5 as per Pakistan open market, while inter bank rate of USD stands at 220.5. Usually, the difference between these two is of Rs. 2 or Rs. 3.

The issue has also been raised on Twitter by a columnist Farrukh Saleem. He attributed this unusual difference to “physical smuggling” of dollars.

Currency Smuggling from Pakistan

Physical bulk cash smuggling involves transferring cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.

Federal Board of Revenue (FBR) has categorically rebutted the unfounded, malicious in intent and misleading in content a propaganda being advanced by some irresponsible elements that there was huge flight of dollars from Pakistan.

“FBR has taken very stringent enforcement measures at the Airports to eliminate the possibility of any such an unethical practice. Pakistan Customs has made it mandatory for all passengers flying out of the country to undergo a thorough personal scrutiny and 100 % declaration of currency through an automated process in order to ward off this nefarious illegal activity. This leaves little possibility of the subject undesirable practice,” according to the FBR.

Previously, bilateral trade between Pakistan and Afghanistan was conducted in US dollars; however, this is now done in Pakistan rupees.

Despite strict measures being taken by the authority, the difference between interbank and open market exchange rate of PKR to USD indicates that there are some loopholes in the system which require immediate action.