KARACHI, Oct 19: The State Bank on Sunday denied that the central bank had the power under the Foreign Exchange Regulations Act of 1947 to take action against people maintaining overseas foreign currency accounts containing more than $1,000.

A statement by the SBP also denied media reports that the central bank had promised to provide cash liquidity at Rs80 to a US dollar to exchange companies at all times.

The SBP said that under a statutory regulatory order (SRO) issued in Oct 1979, Pakistanis were not allowed to hold more than $1,000 abroad. It said the instructions had been incorporated into the eighth edition of the foreign exchange manual published in 2002.

Subsequently, the Protection of Economic Reforms Act was promulgated in 1992, which allowed individuals complete freedom to bring, hold, sell, transfer and take out foreign exchange inside or outside Pakistan. “This legislation has a categorical overriding effect over the Foreign Exchange Regulations Act of 1947. Since provisions in the SRO issued in 1979 and the Protection of Economic Reforms Act became contradictory, the issue was taken up with the government.”

Accordingly, it said, a new SRO was issued on Oct 11, 2003, invalidating the previous SRO.

Referring to the issue of penalties in case of violations of foreign exchange regulations, the statement said in the absence of simple monetary penalties in case of violations of foreign exchange rules and regulations, the “only recourse available with SBP is to suspend or cancel licences of banks or exchange companies, which often becomes more severe than the violation warrants”.

The statement said that the SBP had time and again proposed to the government to amend the Foreign Exchange Regulations Act of 1947, giving powers to SBP to impose direct monetary penalties or exclude FERA from PERA’s overriding effect. However, no action had yet been taken, the statement said.It said that the SBP had been enforcing various provisions governing the trade of foreign exchange, disallowing exchange companies to take part in certain activities or suspending their licences for a certain period.

“Moreover, the SBP has also taken a number of policy and administrative measures to stabilise forex markets since April, 2008.”

EXCHANGE COMPANIES: Denying that SBP ever made the commitment to provide cash liquidity at a level of Rs80 to the dollar to exchange companies at all times, the central bank said that in a recent meeting, the SBP had asked the exchange companies to ensure maintenance of reasonable exchange rate differential between inter-bank and kerb market.

In order to meet their (the exchange companies’) immediate cash requirements against the US dollar, SBP provided cash liquidity at the then prevailing kerb rate of Rs80 to a dollar.

“Linking this arrangement to any specific exchange rate is entirely misleading.”

It was further clarified that the State Bank “will provide cash foreign currency liquidity for market support to the exchange companies as and when required so that exchange companies may ensure uninterrupted supply of cash foreign currency to their customers.

“However, such support will be provided in accordance with the exchange rate prevailing on the day of transaction.”

The central bank said that SBP provided liquidity to both exchange companies and banks to meet the market demand under these arrangements. –APP