ECs unable to control dollar rate without improved supply: Malik Bostan

January 25, 2023 (MLN): Exchange Companies (ECs) will not be able to control the dollar rate in the open market if the dollar supply will not be better off, Malik Bostan President of the Forex Association of Pakistan told MG Link News on Wednesday.

In a meeting with the top officials of the State Bank of Pakistan (SBP), Malik Bostan requested permission to utilize the dollars held in their accounts. Additionally, the ECs have also asked for the provision of dollars against home remittances that are served by ECs' accounts.

According to Malik Bostan, if the dollar supply does not improve, the dollar rate in the open market is likely to shoot up.

Responding to a query pertaining to dollar fluctuation in the open market in early hours, he said, “The drastic appreciation and depreciation within an hour was only due to speculative elements as we have only removed the cap from dollar rates.”

The rates will be purely determined on the demand and supply available in the market, he added.

This could cause significant financial difficulties for many individuals and businesses in Pakistan, as a large portion of the country's economy is dependent on dollar-denominated transactions.

SBP has yet to respond to the requests made by the ECs, but it is likely that they will take the situation into careful consideration.

Experts are of the view that the decision to cap the dollar rate at the open market in Pakistan has had unforeseen consequences. The cap has created a black or gray market for dollars, as individuals and businesses look for ways to access the currency at a more favorable rate.

The capping of the dollar is seen as a hint of a weakening economy and an increased risk of default.

This has forced locals to engage in dollarization and has led to people buying dollars at rates ranging from 245 to 255. Additionally, overseas Pakistanis have been forced to send dollars through the gray market due to the cap.

The official remittance, which peaked at $3.1 billion in April, has dwindled to $2bn. According to dealers, probably $400 million to $700mn has been routed through the gray market, but these numbers cannot be confirmed.

The routing of dollars through the gray market has raised the earnings of speculators, who have started buying gold.

Meanwhile, the gold price appreciation should not be at the current volume, as gold should be cheaper by at least 10,000 to 12,000 per tola.

This situation has created a difficult economic environment for the country, with experts calling for a reevaluation of the current policies.

In the meantime, Pakistanis are keeping a close eye on the dollar rate in the open market, as any fluctuations could have a significant impact on their financial well-being.

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