Karachi, January 22, 2024 – In a strategic move, Pakistan has announced its plans to introduce an online trading platform for foreign exchange by the end of January 2024, marking a significant step toward enhancing transparency and efficiency in the country’s FX market.
This initiative comes as part of Pakistan’s commitment to reforms in the foreign exchange market, as assured to the International Monetary Fund (IMF). The IMF’s country report on Pakistan outlines key measures that the authorities have pledged to implement to strengthen transparency and efficiency in the FX market.
The commitments include:
1. Publishing daily exchange rates in the interbank and open market as of December 2023.
2. Finalizing preparations for transitioning to a new trading platform for spot transactions, connecting all banks, with the system scheduled to go live by the end of January 2024.
3. Undertaking a feasibility study to conduct FX purchases and sales via auctions, including the publication of auction results, by the end of March 2024.
Despite the relatively narrow Current Account Deficit in the first quarter of fiscal year 2023-24 and a substantial increase in gross reserves following program approval, the foreign exchange market conditions in Pakistan were reported to be at times disorderly. The average premium between the interbank and open market rate exceeded 1.25 percent from mid-August to early September, deviating from the program commitments.
In response to these challenges, Pakistani authorities, supported by law enforcement agencies, have taken robust actions to alleviate external pressures. However, they acknowledge that law enforcement and administrative actions alone are insufficient for sustainable relief. The authorities reaffirm their commitment to a market-determined exchange rate, emphasizing that banks and exchange companies (ECs) are free to determine exchange rates between the Pakistani rupee and foreign currencies without any formal or informal influence.
To bolster transparency and oversight in the open market, structural reforms in the Exchange Companies (ECs) sector have been initiated. These reforms aim to create stronger and better-managed ECs that serve the legitimate FX needs of the public, including through banks establishing wholly-owned ECs.
In addition to the aforementioned measures, the authorities are developing a framework to monitor pricing and broader developments in informal markets. A report containing findings is expected to be published by the end of March 2024. To maintain the integrity of the foreign exchange market, any abusive or anti-competitive behavior by market participants will be addressed through enforcement of relevant regulations and applicable laws, as stated by the State Bank of Pakistan (SBP).
