FILE PHOTO: An employee counts U.S. dollar bills at a money exchange in central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany
The State Bank of Pakistan’s (SBP) restrictions on foreign currency to maintain the government’s shrinking reserves have created an underground economy for dollars in the country.
The currency shortage and the creation of a black market add to South Asia’s lengthy list of troubles, which has already been pounded by devastating floods, an economic meltdown, and political instability.
As quoted by Bloomberg, the CEO of Ravi Exchange Company Asmat Ullah, declared that a third market has emerged that is expanding exponentially. The first two are the interbank foreign exchange market and money-changing businesses.
SBP didn’t immediately respond to Bloomberg’s request for comment. However, it’s pertinent to mention here that rapidly depleting foreign reserves compelled the central bank to impose a ban on overseas payments and reduce the limit of foreign currency that a person can carry to $5,000.
In light of this, the CEO of Karachi-based Alpha Beta Core Solutions, Khurram Shehzad, stated that the restrictive policies give birth to the gray economy.
Owing to SBP’s restrictive measures, Google recently blocked payments through its Play Store after reporting a delay for in-app purchases. Furthermore, Honda Atlas Car Limited (HACL) and Toyota Indus Motor Company (IMC) have had numerous weeks-long closures this year because they have been unable to import parts due to the same reason.
Speaking about the situation, the President of the Forex Association of Pakistan, Malik Bostan, quoted two reasons behind the dollar shortage, more spending on international trips after the coronavirus and currency demand from Afghanistan after the Taliban’s rise.
Reportedly, the money-exchange firms have also run out of US dollars. According to them, immigrant workers are constantly using the black market, as it offers a better exchange rate. Resultantly, the remittances declined in October, the lowest in eight months.
Meanwhile, companies that are facing challenges while getting their transactions cleared by SBP have also shifted to the black market. As per the local industry, over 1,000 food containers are stuck at Karachi ports this week because transactions are not being cleared by banks due to the foreign currency crisis.
The above-mentioned reasons are why the black market for dollars has suddenly boomed across the country. It is critical that SBP reconsiders its restrictive regulations in order for individuals and companies to utilize proper channels of foreign exchange.
Via Bloomberg