Karachi Chamber of Commerce and Industry (KCCI) has urged the central bank to establish a dedicated online platform for buying and selling foreign currencies, specifically the US Dollar.
This move aims to address the challenges faced by importers and exporters due to the limited availability of foreign exchange. The KCCI believes that creating a separate portal will facilitate trade and mitigate the shortages of raw materials and machinery that have led to the closure of industries.
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With significantly low forex reserves, the State Bank of Pakistan (SBP) is currently unable to provide sufficient US Dollars to commercial banks for financing imports. As a result, numerous commercial importers, industries, and SMEs are experiencing difficulties in importing essential raw materials, leading to shortages and the closure of businesses.
Proposed Solution: The KCCI has put forth the following proposal as part of its recommendations for the budget 2023-2024:
1. The SBP should establish a digital portal, similar to the one used by the Pakistan Stock Exchange (PSX), specifically for buying and selling foreign currencies, including the US Dollar.
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2. Importers and exporters should register their profiles on the portal, providing their National Tax Number (NTN), bank account information, and other necessary details, accessible through passcodes or login credentials.
3. Exporters who have retained export proceeds can offer a specific amount of currency for sale to interested importers at a quoted price in Pakistani Rupees per USD.
4. Importers will then submit their bids for the offered currency, and the best bid will be selected for the transaction.
5. The transaction will be conducted through the respective banks of the exporter and importer, with the funds being parked in the Nostro Account of the nominated bank and reserved for the specific importer.
6. The importer’s bank will issue a Letter of Credit (LC) with confirmation that the funds are reserved to finance the import.
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7. The importer’s bank will make the payment to the exporter’s bank, charging only nominal service charges, without any additional margin or spread.
8. A similar arrangement may also be developed to enable overseas Pakistanis to sell their foreign currency through the secure portal.
9. The facility should be limited to the import of raw materials, excluding luxury goods and automobiles.
Benefits and Rationale: The Karachi Chamber of Commerce and Industry highlights the following advantages of the proposed separate currency exchange portal:
1. Alleviating pressure on forex reserves.
2. Eliminating manipulation and artificial rate increases by commercial banks and their treasuries, reducing speculation.
3. Ensuring prompt opening of LCs for raw materials, overcoming shortages.
4. Halting the flow of dollars through the grey channel and curbing smuggling activities.
5. Facilitating the determination of the real value of the Rupee against the Dollar, eliminating distortions.
6. Restoring business confidence in the trade ecosystem.
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The establishment of a separate currency exchange portal, as proposed by the Karachi Chamber of Commerce and Industry (KCCI), has the potential to significantly enhance trade facilitation in Pakistan.
By eliminating intermediaries and providing a transparent platform for currency transactions, this initiative aims to address the challenges associated with forex reserves, raw material shortages, and the closure of industries. The KCCI emphasizes the importance of restoring business confidence and ensuring a fair and efficient trading environment.
