The Central Bank of Pakistan has recently imposed foreign exchange restrictions to protect the country’s dwindling reserves. This is in light of recent reports of the emergence of a black market for dollars.
Pakistan’s foreign reserves have reportedly fallen to a four-year low of $6.7 billion.
According to Bloomberg, on the surface, this hasn’t affected the exchange rate, but dig deeper and you’ll be confronted with the reality.
The markets still showed the current exchange rate but the money exchange company reported that they had no dollars. However, if you’re prepared to pay 10 percent more than the fair amount, you can get greenbacks.
Asmat Ullah, CEO of Ravi Exchange Company, a Lahore-based money exchange company, said, “Now a third market has developed,” with the interbank foreign exchange market and currency exchange businesses being the first two.
Khurram Shehzad, chief executive of Karachi-based financial firm Alpha Beta Core Solutions, said the “gray economy will rise” when restrictive measures are implemented.
Along with the black market, Pakistan joins other developing countries like Nigeria, Argentina and Lebanon that have experienced parallel exchange rates.
While a 10 percent premium may not seem like much, the emergence of a black market could force formal authorities to deregulate foreign exchange, affecting foreign investment and trade. Additionally, the dollar premium in the black market may point to further rupee depreciation in the future.
Shortage of foreign exchange and emergence of parallel market add to Pakistan’s long list of problems. The South Asian nation has already been plunged into turmoil by devastating floods, economic crisis and political instability.
(with inputs from agencies)
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