KARACHI: With Eidul Azha right around corner, the gap between buying and selling rate in the open market at Rs9 per dollar has caused huge losses to general public and overseas Pakistanis who send remittances to their families back home during the festive season.

Exchange companies continue to exploit general public by taking advantage of volatile exchange rates. Last year, prior to Eidul Azha, Pakistani expatriates sent around $1.954 billion in August.

With less than three weeks left in Eid, general public is susceptible to these exploiting exchange companies as inflows grow.

During the outgoing week, currency dealers have been earning Rs7 to Rs9 per dollar by buying US currency as low as Rs114-117 per dollar and selling the same at Rs122-123.

However, the persistently low rupee-dollar exchange rates in the kerb could build up pressure on the State Bank of Pakistan (SBP) to further appreciate the value of local currency against the dollar as it did last week after July 25 general election.

Despite being the regulator of currency market, the central bank has not interfered in the market while the banks have maintained high rates of dollar throughout the week ended on Friday.

The SBP depreciated the rupee by over 5pc to Rs128 per dollar on July 16, but the greenback fell back to Rs124 in the wake of steep fall in open market rates after Pakistan Tehreek-i-Insaaf emerged as winner in the 2018 general elections. The scenario did not change; dollar continues to trade lower than the banking rates.

Answering how these currency dealers were earning such high rate of profit on each transaction, a currency dealer revealed that they buy dollars from open market in the range of Rs113-118 and sell them to banks.

“We sell these greenbacks to banks which offer about Rs124 per dollar,” said a currency dealer requesting anonymity.

Small-scale currency holders cannot directly sell dollars to banks as they can only buy greenback from foreign currency account holders. Most of the people with small foreign currency holdings do not open foreign currency accounts; thus they have to sell their holdings in the open market.

The representatives for exchange companies, however, deny allegation of exploitation by all exchanges in the country but do acknowledge that ‘some’ currency dealers were using this method of buying form open market and selling to banks for higher profits.

This is one of the reasons that commercial banks’ dollar holdings continues to rise each week. SBP’s latest data shows commercial banks’ foreign exchange holdings at $6.73bn on July 27 this year. Compared to that, bank reserves in foreign currencies were $5.63bn in July, 2017, an increase of $1.09bn during last year.

“Government can stop this exploitation of general public by allowing small scale savers to sell their foreign currency holdings directly to banks,” said Secretary General of Exchange Companies Association of Pakistan (ECAP).

“We are buying and selling dollars at the same rates as declared for publication but there are some currency dealers profiteering through buying at much lower rates,” he said.

ECAP data issued on Friday revealed that open market rates for dollar were Rs121.75 and Rs123 as buying and selling rate whereas the Forex Association Pakistan’s rates on Saturday were Rs122.50 and Rs123.50 as buying and selling rates.

He said that this lower rate in open market causes loss to overseas Pakistanis as remitting companies in abroad also buy these dollars at lower rates.

Malik Bostan, president Forex Association of Pakistan also suggested that Banks should accept dollars from public which can eliminate exploitation by ‘some currency dealers.’

He said that more than 80pc of the participants in the market are sellers whereas only 20pc are buyers, thus creating a state of in-equilibrium in the market.”We have been injecting $5-$7 million per day in banks since July 26, after the date of general elections held in the country,” he said.

Published in Dawn, August 5th, 2018