IN what could be termed as a major decision, the Exchange Companies Association of Pakistan (ECAP) has unanimously decided to stop artificially keeping rupee overvalued against US dollar in open market and let the rupee-dollar exchange rate depreciate to its actual value.
The decision was necessitated given the shortage of dollars faced by the currency dealers.
We believe the decision will help curb the black market where the dollar was trading at much higher rate than those of the official rate of State Bank of Pakistan and that of the exchange companies.
Because of this difference in rates, a situation had emerged where the people would buy the dollar from the market and sell it in the grey.
As a result of this, there was fictitious demand for dollars and the business was shifting from official channels to the grey ones, hurting not only the reserves but also dealing losses to the exchange companies.
In its statement, the ECAP also alluded to the impact of different rates. In this backdrop, it is believed that once the dollar started trading at the market value, the customers would automatically shift from the grey to the legitimate channels.
This should increase the supply of the dollar and demand will come down. We understand that the most positive impact of this decision would be on remittances which witnessed a decline of about eleven percent during the first six months of the current fiscal year.
However, the free fall of the dollar will also have a negative impact given our too much reliance on imported products.
Rise of the dollar will also increase the prices of essential commodities, at least in the short term.
This is the time when the government officials must ensure that the profiteers do not create artificial shortage of commodities and rob the pockets of the poor consumers.
These are extraordinary times never experienced before, hence, extraordinary decisions have become imperative to steer the country out of this quagmire. It is also for the people to refrain from unnecessary buying of dollars.
