A robust crackdown on illegal foreign exchange trading in Pakistan’s grey and black markets, led by security agencies, has yielded remarkable results, resulting in a surplus of approximately $900 million in the open market. Currency dealers have reported that this surplus has been channelled into banks, signifying a noteworthy shift in the country’s currency landscape.
As a direct consequence of this clampdown, the Pakistani rupee has undergone a remarkable appreciation of more than 6.1 percent against the US dollar in the month of September alone. This surge effectively offset the losses the currency had incurred in August, positioning it as the world’s top-performing currency for the month.
The path to this turnaround began when Pakistan’s financial regulatory authorities and security agencies took decisive measures to curb black market operations. This initiative prompted a substantial inflow of tens of millions of dollars back into Pakistan’s interbank and open markets. It is estimated that roughly $800 to $900 million has been deposited in banks since the crackdown began in September.
Zafar Paracha, the General Secretary of the Exchange Companies Association of Pakistan (ECAP), emphasized that the daily average trading volume of exchange companies has increased significantly, surging from $5-$7 million to $50 million, a direct outcome of the crackdown. Moreover, remittances processed through exchange companies have risen by 10 to 15 percent, with expectations of further increases through formal banking channels.
This development carries particular significance in the context of Pakistan’s economic stability, as the country had been grappling with challenges related to its foreign exchange reserves. A market-determined exchange rate is a crucial condition set by the International Monetary Fund (IMF) for Pakistan to secure a $3 billion bailout loan, which was agreed upon in July to avert a sovereign default. The substantial improvement in currency dynamics holds the potential to make a positive contribution to Pakistan’s economic stability and prospects.