KARACHI (Dec 23, 2018) — The country witnessed higher remittances through banking channels over the last few months but the grey market for currency has also expanded its operations locally.
According to experts, laws aiming to check money laundering resulted in the uptick in remittances through official channels–remittances through banks increased by almost 13 percent in the first five months of the current fiscal year (July 2018-June 2019).
But business volume in the currency market has fallen by 70 per cent in the last couple of months and the grey market has expanded its operation to large scale, said currency dealers.
“The reduced 70pc volume of legal currency business has transferred to illegal market”, said Secretary General Exchange Companies Association of Pakistan, Zafar Paracha to Dawn.
“Investment in dollars and other currencies has disappeared while the business volume has declined by 70pc during the last two months.”
Dealers say laws after laws by the State Bank of Pakistan (SBP) and Security Exchange Commission of Pakistan (SECP) are making the currency business increasingly cumbersome.
Every exchange company must have a compliance officer with the mandate to report each and every transaction with his judgment about the client.
A number of laws have been framed to identify illegal and doubtful transactions and clients in the wake of pressure on Pakistan to address the “things-to-do list” as per Financial Action Task Force (FATF) grey list.
Pakistan was included in the FATF grey list in June. The government was given a time frame to come up with the necessary framework to avoid relegating to the ‘black-list’ of countries.
SECP and SBP have issued strict directions to banks and currency dealers to scrutinize transactions under the “Know Your Customer” protocol. All entities are required to ascertain the identity of their customers in detail.
Besides FATF “things-to-do” directives, the newly-formed government headed by PM Imran Khan also seeks to eliminate money laundering, corruption and install across the board accountability in the country. So does the independent National Accountability Bureau and the Judiciary—all these have somewhat slowed down the money chase, observers say.
All these also had a trickle-down effect on the Rupee value (more Rupee in the market than dollar) leading to devaluation, they said.
Rupee is currently trading at Rs139 against the dollar in the inter-bank market down from Rs108 in January and Rs123 in August earlier this year.
Commenting on the decline in currency trading volumes, Malik Bostan, President Forex Association of Pakistan said that “currency trading fell as nobody is sure about the future of local currency since the market is filled with speculations about further devaluation of rupee to Rs145 or more.
The country’s stock market has also been witnessing a reset, with the pullout of undeclared incomes and undocumented investments, experts say. Despite normal daily transactions and trading volume growth, the KSE-100 Index has seen highs and lows in a trend over the last 2 months. On October 22, the index closed at 38,346 and on December 21 it stood at 38,251.
In between, the index peaked at 42,1002 on November 2.