Pakistan’s recent crackdown against dollar smuggling has helped to raise the value of the rupee versus the dollar.
Chairman of Pakistan Stock Market, Ahmad Chinoy explained that the dollar had shot up because of its short supply in the market.
During transit trade with Iran and Afghanistan, dollars were being smuggled across the border, he noted.
“It’s interesting that commodities being brought into Pakistan were being paid for in US dollars,” he explained.
At the same time, international currency traders – hoarders and speculators in Khyber Pakhtunkhwa and Baluchistan had taken advantage of the situation to exchange foreign currency for the sought-after dollars, narrated defense analyst Brig Said Nazeer.
According to the experts, this had created a shortage of dollars in the market – leading to the gap in the inter-bank and market rate.
Earlier this year, the dollar had shot up in the open market to nearly Pkr 320, while the inter-bank rate hovered around Pkr 290.
As Pakistan teetered on the verge of bankruptcy, the International Monetary Fund urged Pakistan to take steps to close the gap between the inter-bank and market rate.
In September, as the Federal Investigation Agency swung into action against dollar smuggling and the illicit hoarding of dollars, a gradual stability returned to the market.
Institute of Business Administration director, Akbar Zaidi questions how the inter-bank rate was controlled through force, and if such measures were within the range of law enforcement capabilities, why such measures were not taken earlier.
Brig Said Nazeer answers it simply.
According to him, previously the civilian government was divided re policies on neighboring countries – particularly Afghanistan.
“However, the interim government is currently on the same page as the military, and coordinating their efforts together,” he says.
But already the economy has been damaged by the disappearance of dollars.
The business community tells JB Connects that shortage of dollars prevented them from importing raw materials needed for its export industry.
They also imported finished goods at high rates.
This is also why the public should not expect prices to go down any time soon.
FIA cases against those suspected of illegal dollar transactions will also be brought to court before hoarded currency is transferred to the State Bank of Pakistan.
Economists like Akbar Zaidi stress however that the dollar smuggling needs to be strictly controlled in order to see prices come down, and benefits trickle to the lowest strata of society.