KARACHI: Business volume in the currency market has fallen by 70 per cent in the last couple of months but the grey market has expanded its operation to large scale, said currency dealers.

The dealers said that laws after laws by the State Bank of Pakistan (SBP) and Security Exchange Commission of Pakistan (SECP) are making the currency business increasingly cumbersome.

“Investment in dollars and other currencies has disappeared while the business volume has declined by 70pc during the last two months,” Secretary General Ex­­change Companies Association of Pakistan, Zafar Paracha told Dawn.

He said that the grey market for illegal currency business has expanded on larger scale; the reduced 70pc volume of legal business has transferred to illegal market.

Currency dealers said that a compliance officer in an exchange company has been mandated to perform his duty like a police officer and report each and every transaction with his judgment about the client.

A number of laws have been framed to identify illegal and doubtful transactions and clients in the wake of pressure on Pakistan to come out from the Financial Action Task Force (FATF) grey list. Pakistan was included in the FATF grey list in June. The government was given a time frame to come up with the necessary framework to avoid relegating to the ‘black-list’ of countries.

The laws aiming to check money laundering have resulted in higher remittances through banking channels. Remittances through banks have increased by 12.5pc in the first five months of the current fiscal year.

SECP and SBP’s strict directions to scrutinise transactions under the “Know Your Customer” requires all banks to ascertain the identity of their customers in detail.

Rupee is currently trading at Rs139 against the dollar in the inter-bank market down from Rs108 in January and Rs123 in August earlier this year. UAE’s announcement to deposit $3 billion in the SBP account has supported the local currency. Rupee saw slight appreciation on Saturday.

“The UAE’s $3bn support and hope for more from China has had a short-term impact on exchange rate stability. We need long-term policy to store much bigger amount of dollars for extended stability in the exchange rate,” said Malik Bostan, President Forex Association of Pakistan.

Commenting on the decline in currency trading volumes, Bostan said that “currency trading fell as nobody is sure about the future of local currency since the ­market is filled with speculations about further devaluation of rupee to Rs145 or more. This will end up once we succeed to devise long-term plan for foreign exchange reserves.”

Foreign exchange reserves of the country have been falling for several months on account of debt servicing and fill the widening current account deficit which has dropped by 10pc in last five months.

Published in Dawn, December 23rd, 2018