As a result, the State Bank of Pakistan (SBP) has put yet another limitation on people who wish to purchase dollars from the open market, making biometric authentication mandatory for those who wish to purchase $500 or more from the open market. The dollar, on the other hand, reached a new high of Rs171 on Wednesday, setting a new record for the currency.
It was announced on Wednesday by the SBP that “exchange companies will be required to undergo biometric verification for all foreign currency sale transactions amounting to $500 or more, as well as outward remittances.”
Previously, anyone could purchase dollars from exchange companies by submitting a copy of their national identification card to the company. In addition, the SBP stated that “this requirement will be applicable with effect from October 22, 2021.”
Major steps have been taken to halt the flow of dollars from the country to Afghanistan, which has caused a considerable surge in dollar demand on the open market and has destabilized the exchange rate.
SBP has already implemented a number of measures to bring the sharp depreciation of the local currency against the strong demand for the US dollar under control. The exchange businesses have already stated in the media that the outflow of dollars to Afghanistan is extremely substantial, and the Fitch rating organization has also stated that this issue is one of the factors contributing to the destabilization of the exchange rate in recent months.
According to the State Bank’s regulations, any person traveling to Afghanistan will be permitted to bring a maximum of $1,000 in cash per visit, with a total yearly limit of $6,000 on their person.
“In order to improve transparency in foreign currency transactions by exchange companies and to reduce the undesired outflow of foreign currency in the form of cash, the State Bank of Pakistan has implemented various regulatory measures,” according to a circular released by the SBP.
Exchange companies will sell foreign currency in cash and perform outward transfers in amounts equal to or more than $10,000 only if the funds are received by check or through banking channels from the customer.
In a statement, the SBP stated that “these regulatory measures would contribute to improving documentation of foreign currency sales by exchange companies and putting a limit on undesired outflows of foreign currency.”
Malik Bostan, the chairman of the Exchange Companies Association of Pakistan, stated, “The requirement of biometric identification on purchases of $500 and more will assist in reducing purchases from the open market, which is a goal shared by both the State Bank and the government.”
He stated that the proposal for biometric identification was now being discussed with exchange companies. He claimed that the requirement of $1,000 per person removal to Afghanistan was important in order to prevent the unnecessary outflow of foreign money from Pakistan, which would otherwise cause the exchange rate to destabilize.
Since July, as the political situation in Afghanistan has deteriorated, dollar demand on the open market in the United States has surged, causing interest rates to rise. Previously, the exchange companies were depositing 90 percent of their surplus into bank accounts. “Right now, we’re putting around half of our money into banks and the other half towards selling,” he explained.
After revising its Prudential Regulations for Consumer Financing last month, the State Bank stated that the targeted action will aid in reducing demand growth in the economy, resulting in slower import growth and, as a result, supporting the balance of payments.
According to the SBP, the changes in prudential regulations effectively prohibit financing for imported vehicles and tighten regulatory requirements for financing of domestically manufactured or assembled vehicles with engine capacities greater than 1000cc as well as other consumer finance facilities such as personal loans and credit cards.
A total of 525 items were subject to 100 percent cash margin requirements (CMR) on Sept. 30, increasing the total number of items subject to CMR to 525. The State Bank of China imposed the CMR to control imports that had severely destabilized the exchange rate and worsened the current account deficit.
The month-on-month growth in the current account deficit posed a major danger to the government’s ability to maintain a balanced external account. The deficit increased by $1.5 billion in August, compared to a deficit of $838 million in July FY22.