Amid the Finance Minister’s warning and a show of strength in recent weeks by the Pakistan Rupee, there still looks to be a shortage of the US dollar in the open foreign exchange market here in Pakistan. This is troubling considering that the Pakistani Rupee has managed to regain some of its lost value against the dollar, particularly since the ascent of FM Dar to his office. This increase in value is of no use to importers, however, if they do not have the dollars required to make payments to vendors and take full advantage of the increase in the Rupee.
With the rupee currently hovering around the 220 to 1 dollar mark, it is clear that the government’s stated aim of bringing the value of the dollar down any further will require more action on its part. It is unclear how there is a shortage of dollars in the open market given the government’s recent steps to try and counter hoarding and other unofficial channels of trade. In fact, some of the government’s decisions might have even affected the supply of foreign exchange adversely. The reported informal request to banks, for instance, to not open any new Letters of Credit (LC) has only meant that importers are having to use backchannels themselves to make payments and avoid their transactions showing up in the Current Account Deficit (CAD).
The government knows that the foreign exchange market is supremely sensitive and reacts to both speculation and actual changes to supply and demand with extreme volatility. It is indeed important to protect the supply of dollars in the economy to avoid hoarding or other illicit and inorganic means to inflate the value of the dollar, but it is also paramount that importers and exporters alike benefit from the Rupee’s strength and can use it to conduct trade in and out of the country.