LAHORE

The raids of Federal Investigation Agency on currency market in Peshawar have created panic in forex markets in other parts of the country including Lahore, creating artificial shortage of greenback.
In the provincial capital of Punjab, almost all major currency dealers were refusing exchanging dollar against local currency mainly due to fear of raids by the FIA which arrested at least 45 money exchangers involved in hundi business in Peshawar on Thursday. Lahore’s currency dealers said even registered exchange companies and licence holders were refusing to sell dollar not due to shortage of greenback, but owing to the fear of any inquiry or investigation regarding daily supply of currencies as most of them (dealers) run a parallel business of hundi.
Moreover, the arrest of currency dealers in Peshawar has also affected dollar supply to other cities of the country, as major supply of foreign currencies from Afghanistan to Pakistan has been halted temporarily due to the raids, they added.
The Federal Investigation Agency and local police, in a joint operation on Thursday, raided a currency market in Peshawar’s Chowk Yadgar area and arrested 45 dealers allegedly involved in hundi business. According to Deputy Director Qazi Abdul Hameed, the FIA had sealed four buildings being used by these dealers, recovering documents showing their alleged involvement in the hundi or hawala business. He said that besides arrests of the people, the market from where this business was being done had also been shut down. The raiding party was backed up by a large number of police and security personnel and officials of the Counter-Terrorism Department.
The aim of the raids was to stop sources of terrorist funding and end hawala and hundi money transfers. Malik Bostan, President, Forex Association of Pakistan, admitted some reports of dollar shortage in some parts of the country due to panic in the market.
“There is no significant shortage of dollars in the market due to high forex reserves and continuous dollar supply by the central bank in open market. The rates are stable for the last several weeks. If there is some shortage it’s because of high demand of dollar from gold importers,” said Malik Bostan.
He told The Nation, that deals for $1000-1,200 were easily available in the market, but bigger amounts were difficult to manage. Bostan said he was ready to provide any amount required on market rate. Money dealers only refuse to sell over $50,000 to avoid going into legal formalities, he added. He said that dollar was also under pressure because of higher demand from the travelers.
It is surprising for many that the dollar is not available and exchange rate is still vulnerable despite supply of dollars from the State Bank and nearly $21b foreign exchange reserves.
Malik Bostan said that the government has lifted ban on import of gold, imposing just 1 percent duty in Pakistan but not providing facility of opening LCs to the gold importers. They are bound to lift dollars from open market instead of getting from banks like other importers following decline of gold rates in international market, he added. The gold importers have also created disturbance in currency market which are purchasing dollars to import the gold which is later sent to India where import duty is higher than Pakistan.
Shortage of dollar is surprising when the State Bank has been supplying dollars to the open market to meet the demand.
Analysts fear that the increasing debt servicing on foreign debts would put more pressure on the rupee. Repayment to the IMF would push the debt servicing as high as $10 billion in the next two years. Malik Bostan said that massive borrowing from foreign sources would not allow the exchange rate to stabilize and present rate might be short-lived.
He said the biggest reason is the dollar itself which appeared as the single trusted global currency and is the biggest target of trillions of liquidity.
Almost all international currencies depreciated against the US dollar since the beginning of the current fiscal year, including the euro, the pound and the yuan. A recent fall in the Chinese currency badly hit the emerging markets and their currencies were significantly depreciated against the greenback. The exports have been declining faster this fiscal year compared to the preceding one.
The dollar remained above Rs106 in the open market for most of the week, despite warning by the finance ministry and the State Bank to sell it at Rs106.