Forex traders press on SBP for riyal, dirham reserves
Statesman Report
KARACHI: Foreign exchange companies have called on the central bank to create a mechanism to build up foreign exchange reserves parallel to the US dollar, as third-currency demand is plummeting in the wake of global travel restrictions.
“The third currency consisting of Saudi riyals, UAE dirhams, UK pounds, and euros, equivalent to $10 to $12 million per day ($300-450 million per month), changes hands at the counters of exchange companies,” Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP), told Arab News.
The foreign exchange companies have asked the central bank to require commercial banks to provide them with dollars or rupees in return of other foreign currencies.
Bostan, who headed a delegation that met with central bank officials on Thursday, said that demand for riyals, dirhams, pounds and euros has declined to only 1 percent in the open market.
“Banks are not accepting cash, that is why we have approached the central bank to devise a mechanism, because if flight operations with the UAE are suspended, that would create chaos,” he said.
Currency dealers say $3-4 million in Saudi riyals arrive to their counters every day, followed by UAE dirhams, mainly from Pakistani expatriates.
“Due to the ban on Umrah flights and lockdown in Saudi Arabia, home to Pakistani workers, the demand is subdued. If no one will buy from us, we will not buy either because we don’t have that much resources to hold the money back, and this will be a problematic situation,” Bostan said.
In year 2019, Saudi Arabia received 332,713 Pakistani workers, 211,216 went to the UAE. The overseas Pakistanis remitted $3.5 billion in the current fiscal year from Saudi Arabia and $3.1 from UAE, according to data from the Bureau of Emigration and Overseas Employment, and the State Bank of Pakistan (SBP).
Forex traders argue that current restrictions on international travel amid the global coronavirus epidemic are an opportunity for Pakistan to build up its reserves in currencies other than the US dollar.
“This is not new, we have practised similar processes back in 1998 when economic sanctions were imposed on the country. State bank, commercial banks and exchange dealers had developed a mechanism where they would surrender currencies to commercial banks and they would deposit with SBP. The process had build up the reserves of country from $500 million to $2 billion with three months,” Bostan said, adding that SBP has positively responded to their demands and sought written proposals for setting up the mechanism.
Pakistan is facing pressure due to an outflow of foreign funds, or hot money, from the capital market, which reached $671 million on Wednesday.
The country’s foreign reserves as of March 6 stood at $12. 8 billion, according to SBP.