The State Bank of Pakistan (SBP) has sanctioned authorized dealers to procure dollars from the interbank market to settle card-based cross-border dealings via International Payment Schemes (IPS). This action has been acknowledged as a ‘positive step.’
On Wednesday, the central bank issued a notice stating, “In response to appeals from stakeholders, we have decided to permit authorized dealers to buy USD from the interbank market to reconcile card-based cross-border transactions with IPS [like Visa, Mastercard, etc.].”
This announcement is effective immediately and will remain in place until July 31, 2023, as per SBP.
Earlier, authorized dealers could only buy USD for such transactions from currency exchange firms.
The Exchange Companies Association of Pakistan (ECAP) considered the SBP’s announcement a “positive move,” asserting that it would decrease the expanding gap between interbank and open market exchange rates.
The local currency has recently traded above Rs300 against the US dollar in the open market. However, dealers noted that the open market rate for the rupee was between Rs313-316 per USD on Tuesday. This disparity amounts to around Rs27.53-30.53 compared to the interbank closing rate of Rs285.47 declared by the SBP on Wednesday.
A substantial discrepancy between the official and street markets’ rates incentivizes transactions outside the formal banking system. The growing gap between the two rates is forcing the central bank to devalue the currency and tempting Pakistani expatriates to send money through unofficial channels, like ‘hawala.’
The open market has a strong demand for dollars due to the requirements of summer vacation travelers and Hajj pilgrims. In addition, businesses also demand dollars, as some imports are financed through the open market.
Following the SBP’s announcement today, ECAP General Secretary Zafar Paracha claimed that the SBP made the “correct decision” as it would gradually reduce the open market exchange rate by Rs 20-25 per USD.
“It will also aid in reducing the vast gap between the interbank and open markets. In addition, it will also be beneficial in increasing the inflow of remittances,” he added.
 has granted authorised dealers the right to buy dollars from the interbank market for card-based cross-border transactions. This is considered a significant step towards reducing the gap between interbank and open market exchange rates){kind=link}