The Exchange Companies Association of Pakistan (ECAP) has made a significant decision, removing the cap on the US dollar, effective as of tomorrow (Wednesday), to halt the market’s increasing “artificial” demand for the greenback.
The State Bank of Pakistan’s official rate, the rate offered by exchange businesses, and the black market rate are the three rates at which the dollar is currently traded.
After a meeting of ECAP members on Tuesday, the association released a statement in which it announced the removal of the US dollar cap due to its negative impacts.
The association’s statement emphasized the effects of various rates and stated that there was “artificial demand in the market” as a result of people buying dollars from us and selling them on the gray market.
People chose to do this, which caused the business to move from legal to illegal channels, harming the reserves and causing losses to the exchange businesses.
The organization explained why the cap was removed, claiming that once the dollar was let to trade at market value, consumers would immediately switch from the gray market to the authorized channels.
After the conference, Zafar Paracha, the general secretary of ECAP, told that up to 90% of the demand was “fictitious” because people were buying dollars through legitimate means and then selling them to shady dealers.
“By taking this action, we hope to show individuals how much their money is worth. The market will benefit as the supply of dollars rises and the demand for them declines.”
Even though market forces will set the exchange rates, Paracha continued, he anticipated that the dollar would be exchanged at close to the black market rate of Rs254–Rs257.
When asked if he thought that Finance Minister Ishaq Dar will lift the dollar cap, Paracha responded, “I am hopeful that things will proceed in a better path.”
The rupee, which closed at 230.40 today in the interbank market, has appreciated against the dollar over the past 8 to 10 days, according to the ECAP general secretary.
The removal of the artificial cap is being demanded by all forums, including the International Monetary Fund (IMF), so things will get better, Paracha continued.
The association will reconvene later this week to decide the best course of action if this intervention was unsuccessful, he added.
The ECAP secretary general added that after the cap was lifted, remittances, which had decreased by 19% in December to $2 billion from $2.52 billion in the same month of 2021, would also increase.