KARACHI: A third currency market has emerged in parts of the country in the presence of officially recognised inter-bank and open markets.

Currency dealers admitted that a black market exists in all parts of country, but no ‘A-category’ exchange company is involved in such a business.

The black market rates are much higher than official rates in the open market. The open market rates were hovering around Rs99.25 to Rs99.35 on Monday. But in the black, dollar was traded as high as Rs102, and its most common rate was not less than Rs101.

“We have been selling dollar at Rs99.25 and no ‘A’ category exchange company has other than this rate,” said Malik Bostan, Chairman, Exchange Companies Association of Pakistan.

“We are not responsible for higher rates of dollar if someone, other than an ‘A’ category exchange company is involved,” said Bostan. However, some A category exchange companies admitted presence of a black market for dollar where dollar is offered at double rates.

The open market twice touched the figure of Rs100 for a US dollar during the last 40 days.

The figure of Rs100 is termed as a psychological barrier and was accepted by the State Bank which forced the open market dealers to bring back the dollar to as low as Rs100. The open market still offers Rs99.25-35 for dollar.

The State Bank has made it difficult for buyers to purchase a higher amount of dollar from the open market as they have to submit a form and tell the reason for buying even $500.

The black market neither provides a slip for the dollar, nor it seeks any information, said an A category exchange company dealer.

The black market may make a negative effect on the exchange rate regime.

At first, the dollar would freely depreciate the local currency, which means that the process of depreciation of local currency would be faster. The same situation was witnessed in Iran and Afghanistan where dollar fatally inflicted local currencies. Secondly, it would hurt remittances through legal channels and Hundi and Hawala business would flourish. It would encourage hoarding of dollar and may cause its shortage in the market.

The State Bank has been using pressure on the inter-bank and regulated open markets from crossing the red line of Rs100, but the local currency has already depreciated in the open market which is not regulated, said a major currency dealer who did not want to be identified.