1. Exchange Rate Regime

Since May 1999, Pakistan has been following a market-based flexible exchange rate system. Inter-bank rate applies to all foreign exchange receipts and payments both in the public and private sectors. Exchange rate is determined by the demand and supply conditions in the domestic interbank foreign exchange market.

– All foreign exchange requirements for all approved purposes, including imports, services and debt repayment are met by the authorized dealers that form the inter-bank market. The authorized dealers are not required to approach the SBP for release of foreign exchange for any purpose, nor are they required to surrender it to the SBP. Each authorized dealer is free to fix their own buying and selling rates. The SBP does not provide forward cover to the authorized dealers. However, authorized dealers may provide forward cover for exports, imports and other permitted transactions, in accordance with the conditions prevailing in the market.

2. FX Reserves

Foreign Exchange Act 1947 authorizes State Bank of Pakistan to manage country’s foreign exchange reserves. As an agent to the Government, the Bank has been authorized to purchase and sale gold, silver or approved foreign exchange and transactions of Special Drawing Rights with the International Monetary Fund under sub-sections 13(a) and 13(f) of Section 17 of the State Bank of Pakistan Act, 1956.

– As the custodian of country’s external reserves, the State Bank is responsible for the management of the foreign exchange reserves and repayment of external debts. The reserves management task is being performed by an Investment Committee which, after taking into consideration the overall level of reserves, maturities and payment obligations, takes decision to make investment of surplus funds in such a manner that ensures prudent management of Foreign Exchange Reserves with core objective of; Safety, Liquidity and Optimum Return.