The exchange companies have decided to stop artificially keeping Pakistani rupee (PKR) overvalued against US dollar in the open market and let the rupee-dollar exchange rate depreciate to its actual value.
Pakistani rupee may steadily lose value until it reaches the level of the grey market in a few days, according to reports.
The black market price of local currency is currently between Rs250 and Rs260 per US dollar, although traders had artificially kept the rate at Rs238 till Tuesday.
“The association has decided to remove cap on rupee-dollar exchange rate,” Exchange Companies Association of Pakistan (ECAP) President Malik Bostan said in audio and video messages after chairing a zoom meeting on Tuesday.
“The move would help eliminate black currency markets, increase flow of foreign currencies to the dealers and available to public (for international travelling, education and hospital fees and etc.”
He said that in the interest of the country, traders voluntarily opted to restrict the exchange rate. But the choice led to an underground market for cash that seemed to be more detrimental to the country.
“People were buying dollars from open market (at Rs238) and selling in black market (at Rs250-260), making it a business to mint profit,” he said, adding no one was coming to the dealers’ counters to sell foreign currency which resulted into drying up supplies on the other hand.
According to ECAP General Secretary Zafar Paracha, the decision to abolish the exchange rate ceiling will aid in the eradication of the black market and restore the inflow of foreign money from the illicit system into the legitimate one.
Additionally, the government has been urged by the International Monetary Fund (IMF) to relinquish control over the rupee-dollar exchange rate in the interbank market and allow market forces to decide the rate while taking the demand and supply of US dollars into account.
Accordingly, it is anticipated that the local currency would also reach Rs250-260 in the interbank market as compared to the US dollar.
Pakistan technically has three currency markets, including the interbank, open, and black markets. As a result, each of the three markets is providing a different rate.
The black currency market was formed after Finance Minister Ishaq Dar tried to keep the currency artificially overvalued at Rs180–200 to the US dollar after returning to the ministry in late September 2022.
The currency, therefore, appreciated to Rs218 in the early days of October from its all-time low of Rs240 the first time in late July 2022 and the last time in September 2022.
Dar opened an investigation against the commercial banks, blaming them for market forces that had artificially devalued the currency to Rs240 per dollar.
Governor State Bank of Pakistan (SBP) Jameel Ahmed said that the central bank has completed the investigation against 13 commercial banks allegedly involved in rupee-dollar parity manipulation.
“The central bank is all set to take action against them in days (instead weeks and months). The action could be fiscal or regulatory one,” he added.