KARACHI: For the first time the dollar rate against the rupee in the ‘grey market’ fell significantly lower than that of the open market on Tuesday, reflecting a loss of attraction for dollars smuggling to Afghanistan.

The dollar sold at Rs273 in the grey market, dubbed the Kabul market, and at Rs282 in the open market. The situation has changed after the free-floating of the exchange rate in Pakistan.

The dollar rate in interbank appreciated by 98 paisa to Rs276.28 from Rs275.30 a day before.

While the interbank market was silent over talks between the government and the International Monetary Fund, currency dealers said they were getting some liquidity from banks.

Dollar price in ‘Kabul market’ plunges to Rs273

However, they maintained that the smuggling of dollars to Kabul continued which is a real problem for Pakistan already facing a serious shortage of greenbacks.

Some currency dealers said Afghanistan depends largely on smuggled dollars from Pakistan since Kabul has no exports. They said though the smuggling has lost attraction, it continued.

“Smuggling of dollars has continued since the Taliban takeover of Kabul in August 2021. The massive smuggling of dollars and Taliban’s instructions to their people to get rid of PKR resulted in a dollar price hike,” said Malik Bostan, Chairman of the Exchange Companies Association of Pakistan.

The rupee has depreciated by 70 per cent since the Taliban took over the government in Afghanistan at the end of August 2021. Data shows the dollar rate was Rs166 on Aug 30, 2021, which rose to Rs282 on Feb 7, 2023. The rupee lost 70pc against the dollar over the last 17 months.

Afghani surges

However, the afghani, the official currency of Afghanistan, gained against the US dollar and returned to the same position it had before the Taliban takeover.

The US dollar was equal to 80.8 afghanis in July 2021 and reached an all-time high of 124 in December that year.

“Today’s dollar rate in Kabul is 90.15 afghani,” said Mr Bostan, who has been critical of the dollars smuggling to Afghanistan and asking the government to impose a complete ban on their movement to Kabul.

The strong currency helps importers spend less and buy more, while exporters can’t sell their products. Since Afghanistan has nothing to export, its importers are benefitting from a strong currency.

Currency experts said that by keeping the currency stronger, Afghanistan buys things at a much cheaper price from the international market, compared to Pakistan.

“If talks with the IMF succeed and inflows start coming to Pakistan, the dollar would depreciate against the rupee and once again the Kabul market will be active to smuggle dollars from Pakistan,” said a banker.

Published in Dawn, February 8th, 2023