KARACHI: Consumers were left running from pillar to post as the open market ran massively short of US dollars on Monday with transactions happening only through “connections”, as some currency dealers Business Recorder spoke to put it, raising questions on the mechanisms put in place to ensure availability at a time when the rupee is largely stable in the inter-bank market.

“There is a shortage of US dollars in the open market,” Zafar Paracha, General Secretary at the Exchange Companies Association of Pakistan (ECAP), confirmed to Business Recorder on Monday.

The shortage comes at a time when the rupee has remained largely stable in the inter-bank, hovering around Rs219-220 for almost a week. In the open market, ECAP quoted rates to be Rs 222.70 (buying) and Rs 224.90 (selling).

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However, the rates proved to be meaningless as multiple exchange companies and dealers reported having no dollars with them. Officials at these companies said the shortage has persisted for almost a week.

“Dollar is traded at Rs232 through unauthorised channels. This is attracting sellers towards the grey market, and they are avoiding formal channels of exchange companies,” added Paracha.

Amid declining foreign exchange reserves, Pakistan has faced an exchange rate crisis multiple times this year with authorities vowing a crackdown on speculators. The promised action comes in tandem with wild swings seen by the rupee that hit record lows in the inter-bank market, and witnessed its worst monthly performance in July in over 50 years.

The arrival of Ishaq Dar at the helm of the finance ministry did trigger a bullish trend in the currency market, with the rupee appreciating nearly 10% in less than three weeks, but it also led authorities to suspect manipulation by banks and exchange companies.

In response, the State Bank of Pakistan (SBP) said at the start of October it will soon complete the investigation into alleged manipulation by commercial banks of foreign exchange operations in the country.

“The investigations are being carried out by the regulator and results might come soon,” the chief spokesperson for the SBP Abid Qamar had said back then.

On Monday, the SBP did not respond to requests for a comment.

Meanwhile, Paracha said that on a regular day, $ 50-60 million dollars are traded in the open market. “However, at the moment, less than $5 million are being traded. The dollar is being smuggled to Afghanistan. Despite central bank’s measures, smuggling remains rampant as it seems that government institutions are not on the same page.”

The currency dealer said the government needs to revisit its trade and immigration policies with Afghanistan and Iran.

“Thousands are coming on a daily basis from the neighbouring countries, leading to smuggling of dollars,” he said.

Paracha added that the government needs to relax rules for exchange companies, as stringent procedural requirements are making customers reluctant to approach the open-market.

On the other hand, Malik Bostan, President Forex Association of Pakistan (FAP), dismissed reports of shortage, saying that the US dollar is available.

“There is no shortage of dollars in the open market,” he told Business Recorder. “The foreign currency is available in ‘A’ category exchange companies but not in smaller ones.”

Copyright Business Recorder, 2022