As the value of the dollar rises every day, banks are increasing their purchases of US dollars and transferring them abroad via credit cards, while the government struggles to stem the flow of greenbacks.
On Friday, the dollar was last reported to have closed at Rs236.84, up 96 paise from the previous day’s rate of Rs235.88 as reported by the State Bank of Pakistan (SBP).
According to specialists in the currency market, the SBP and the government tightly regulate purchasing dollars on the open market, but banks offer an escape hatch in the form of credit cards.
According to Malik Bostan, chairman of the Exchange Companies Association of Pakistan, “the average banks’ purchase every week was approximately two to four million dollars, which has now increased to $12m on average” (ECAP).
The common man has a very hard time spending more than $500 on the open market, but a legal solution has been established. Now that tourists can leave the nation with up to $10,000 in cash, demand for credit cards is skyrocketing.
According to market participants, banks’ dollar purchases have reduced the supply of US dollars for trade.
In a statement, Mr. Bostan stated, “We have urged the government to cut the maximum for travelers to $5,000.” He also proposed capping credit card spending at $2,000 each month.
Experts in the field of foreign exchange say the government is seeking to increase the country’s foreign exchange reserves by limiting spending and borrowing from global lenders, but that credit card withdrawals could sabotage these efforts.
Importers have complained that it is difficult to open LCs (letters of credit) for raw materials, despite the SBP’s assurances that restrictions do not exist. An importer stated, “This is being done as the SBP wants to minimize the import bill.”
Moreover, a currency dealer alleges that banks are purchasing U.S. dollars from the grey market at significantly higher rates.
However, the US dollar is stronger in Pakistan due to the outflow through credit cards, which makes the exchange rate more vulnerable.
Mahnur is MS(development Studies)Student at NUST University, completed BS Hons in Eng Literature. Content Writer, Policy analyst, Climate Change specialist, Teacher, HR Recruiter.
