KARACHI: The recent clampdown on the smuggling of US dollars to Iran has caused the greenback to lose against the local currency, leaving it in a surplus of around 80pc in the currency market, currency dealers said on Saturday.

The US dollar started falling in the open market and its price difference with the inter-bank market too narrowed down considerably, standing at Rs105 to Rs105.10 in the open market against the inter-bank rate of Rs105.80 to Rs105.90.

Currency dealers said the dollar may see a further decline with the beginning of Ramadan when the inflow of remittances is expected to increase on the pattern of yesteryears.

“There is a glut of the US currency in the open market while prices are slowly falling,” said Zaffar Pracha, the secretary of the Exchange Companies Association of Pakistan. He blamed the clampdown on the smuggling of the currency to Iran and Afghanistan for its abundance in the local market.

After the lifting of sanctions on Iran, the country has been earning substantial foreign exchange against oil exports which has also slashed their dollar demand, he reasoned.

However, currency dealers maintained that Pakistani authorities have upped the efforts to prevent the smuggling of currency to Iran in the wake of recent events where Indian spies entered Pakistan via the neighbouring country.

So far, trading with Iran has not improved despite the lifting of sanctions. The State Bank of Pakistan (SBP) asked Pakistani banks to develop banking relations with Iran and open branches, but no concrete move has been noted in this regard yet.

In fact, SBP’s latest data for July-March shows that trading with Iran has decreased further. Exports to Iran stood at just $23.9 million against $25.9m during the same period of the last fiscal year, while imports were just $54,000 against $271,000 during the same period. Iranian traders were meeting their need for dollars through smuggling from Balochistan while goods were also being smuggled on both sides.

“This is obvious from the fact that the dollar in Quetta is now cheaper than in Karachi while it had been costlier in Quetta for many years,” said Malik Bostan, the president of Forex Association of Pakistan.

The currency dealers claimed it was difficult to assess the effect of the Panama leaks on the market, but they expressed certainty that illegal transactions had come under strict vigilance of the authorities tackling terrorism in the country.

Hundreds of Pakistanis have offshore companies in Panama. These companies operate on behalf of their owners who have collectively invested billions of dollars in them.

Currency dealers said the market is in an 80pc surplus, which means the demand is just about 20pc against the regular selling in the currency market. Mr Pracha said that on the whole, around $6 to $8 million are being deposited in banks daily by currency dealers of the open market.

“The overflow of dollars indicates both people are not buying dollars as investment and that illegal outflow has come to standstill,” said Anwar Jamal, a currency dealer in the open market.

Published in Dawn, May 1st, 2016