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Pakistanis hoarding dollars in hordes to profit after crisis

KARACHI, October 19 (Internews): A dramatic decline in the gap between
inter-bank and open market foreign exchange rates in Pakistan is driving
many people to buy dollars from the kerb market and put them into bank
deposits.

On the face of it this may seem illogical because the price of the
dollar is still higher in kerb than in the inter-bank market. But there
is more to this than meets the eye.

People are buying dollar at around Rs 62.75 to place them into bank
deposits after converting the same at the rate of Rs 62.15. In other
words they are losing 60 paisas on each dollar.

Market sources say this is because they are anticipating that in the
days to come the greenback will rise again.

Suppose the dollar shoots up to Rs 63.15 in the inter-bank market at the
end of the month. In such a case, these people would sell the dollars in
their bank accounts at this rate and gain a net 40 paisas per dollar (Rs
63.15-Rs 62.75).

While this may seem simple arithmetic, does it reveal an ongoing trend
or is it a wild guess? Far from it, say market sources.

"Look at the foreign exchange figures," says head of treasury of a
foreign bank. He is right. Foreign currency reserves of the banks have
risen during the week ending on October 13.

The latest State Bank of Pakistan figures show that the reserves held by
commercial banks rose from $1.578 billion on October 6 to $1.588 billion
on that date.

"This means people were putting in dollars in foreign currency
deposits," said a central banker. "But there is another thing. Some
people might also have re-deposited the dollars that they had withdrawn
earlier in panic."

Panic-led as well as purposeful withdrawals accelerated after September
11 terrorist attacks on New York and Washington. Within a month people
took out $59 million from their foreign currency deposits for they
feared that the government would freeze these deposits.

But prompt issuance of a presidential ordinance guaranteeing the safety
of these deposits seemingly changed the sentiments. Besides, a dramatic
fall in the dollar value lured many to put greenbacks back into bank
deposits to gain windfall when they shoot up.

But a million dollar question is whether the dollar would go up in the
weeks to come?

"The answer is, it will not," said a central banker who tried to bring
home the point that the rupee was not overvalued. But independent
economists do not share this optimism.

Many say that the rupee would fall again in the inter-bank market once
Pakistan gets into a credit agreement with the IMF as Islamabad is
trying to secure a medium term facility from it to remain current on its
debt payments. -Internews

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