Exchange companies can play part in fetching remittances?

• Author: Fazl-E-Haider, Syed
• Position: Report

Byline: Syed Fazl-E-Haider

A non-bank foreign exchange company (also known as foreign exchange broker or simply forex broker) is a company that offers currency exchange and international payments to private individuals and companies. There are more than 50 foreign exchange companies operating in Pakistan. The majority of foreign exchange transactions are handled by the banks, while the money changers handle only upto 25% of the market share. Though banks enjoy government's incentives on fetching remittances, yet exchange companies do not enjoy any incentive. These companies are even not privileged to take dollars from banks to meet the rising demand.

Exchange houses demand the government to enforce the ban on the smuggling of US dollars to Dubai via Pakistan-Afghanistan-Dubai. It has also been demanded by the exchange companies that they should be allowed to provide remittance/currency facilities to trade-related business. The government can assign these companies an important role by accepting their just demands.

The exchange companies have to continue their operations under stringent regulations by the central bank to check money laundering and terrorist financing. Last year, the State Bank of Pakistan (SBP) directed money-exchange companies to keep a record of any transaction worth $500 or more. As per the new instructions, exchange companies are required to keep a copy of the identity card or passport of the person involved in the transactions. The central bank has directed the companies to identify the people who engage in transactions of the dollar. Previously, it was binding on all the exchange companies to ask for the central bank's approval for all outward remittance transactions of $50,000 or above. A couple of years back, the central bank issued new regulations for exchange companies, allowing them to export all foreign currencies other than the US dollar and to import dollars against these foreign currencies.

In another regulation, the central bank advised exchange companies to accept all types of dollars. The exchange companies contended that commercial banks were even not depositing small denomination, old or stapled dollars into the accounts of depositors. The exchange companies mainly export these dollars to Dubai resulting in one to three percent loss on exchange of these dollar notes. Therefore, the companies are accepting small denomination, old or stapled dollars at lower exchange rate, while banks categorically reject...