Despite government’s claim of having launched a crackdown on foreign currency smugglers, Pakistani currency hit a new historic low at Rs303.05 against the US dollar in the inter-bank market on Tuesday, maintaining its record-breaking downward spree for the sixth consecutive working day.

The State Bank of Pakistan (SBP) reported that the domestic currency dropped 0.35%, or Rs1.05, to a new all-time low at Rs303.05 against the greenback.

With the fresh fall, the cumulative loss in the currency’s value reached 4.80%, or Rs14.56, in the first 15 days of the current caretaker government, continuing the fresh round of depreciation.

In the open market too, the currency decreased almost 1%, or Rs3, to a new record low at Rs318/$, according to the Exchange Companies Association of Pakistan.

Accordingly, the difference between exchange rates in the two markets further widened to around 5% (or Rs15), remaining well above the IMF’s recommended level of 1.25% (slightly over Rs4).

Market talk suggests that the rupee is losing value every day owing to the smuggling of US dollars from Pakistan to neighbouring countries.

The illicit Hawala-Hundi operators are paying a significantly higher price to the sellers of US dollars and demanding even higher price for dollar purchase by importers for settling payments abroad. This is weighing on the rupee in both open and inter-bank markets.

To arrest the currency’s free fall, the authorities concerned have launched a crackdown on currency smugglers and have taken action against the exchange companies found violating trading rules.

In one such move, the SBP suspended, with immediate effect, the authorisation of Money Link Exchange Company Limited for a period of three months on account of serious violation of the central bank’s regulations and instructions.

“The exchange company, its head office and all nine outlets have been banned from undertaking any kind of business activity during the suspension period,” the SBP said in a statement.

However, such action has so far failed to control the speculative rise in demand for the US dollar while the Pakistani currency has kept on sliding for the past two weeks.

Experts said that the reopening of imports, resumption of withheld payments to international airlines for their services in Pakistan and restart of repatriation of profits and dividends by foreign investors to their headquarters abroad added to the demand for the greenback.

Taking lead from rupee depreciation in the open market, the gold pricing body revised up the precious metal’s price by Rs500 to Rs233,500 per tola (11.66 grams).

The rupee-dollar parity plays a critical role in determining the bullion price in local markets as the country entirely relies on imports to meet consumer demand.

Published in The Express Tribune, August 30th, 2023.

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