All
Authorised Dealers
in Foreign Exchange,
Dear
Sirs,
ADOPTION
OF MARKET BASED UNIFIED EXCHANGE RATE
1.
THE PRESENT EXCHANGE RATE SYSTEM
Attention
of the Authorized Dealers in invited to F.E.Circular
No. 38 dated the 21st July, 1998
as amended and amplified through various F.E.Circulars and
Circular letters. These circulars contain instruction for
implementing a multiple exchange rate system. Under the
system, the exchange market consists of the Official exchange
ate (of Rs 46 per U.S. dollar), the "Floating Inter-bank"
exchange rate (FIBR) (which varied depending on the market
conditions) and the "Composite" rate, which represents
the weighted average rate for those transactions that were
effected with a mixture of foreign exchange acquired at
the "Official" rate and "Floating Inter-bank"
rate. Under the system, all foreign exchange earnings are
required to be repatriated and sold to the Authorized Dealers.
However, only 5% of all foreign exchange receipts are surrendered
by the Authorized Dealers to the State Bank at the "Official"
exchange rate. The rest of the receipts are sold in the
inter-bank market at the market determined "Floating
Inter-bank" rate. On the payment side, imports of wheat
and specified POL products are effected at the "Official"
exchange rate. For all other transactions, only 5% of the
needed foreign exchange is provided by the State Bank at
the "Official" exchange rate. The remaining 95%
is purchased from the inter-bank market at the "Floating
Inter-bank" rate.
2.
INTRODUCTION OF A UNITARY RATE SYSTEM
It
has been decided to replace the above system by a market
based unified exchange rate system with effect from May
19, 1999. For the purpose, the "Official" exchange
rate has been abolished and the "Floating Inter-bank"
rate shall apply to all foreign exchange receipts and payments
both in public and in private sectors. Thus, effective from
the above date, the country has adopted a market-based unitary
exchange rate system.
3.
ABOLITION OF SURRENDER REQUIREMENTS
The
requirement that all foreign exchange earnings, including
export proceeds, be repatriated the country in a timely
manner will remain unchanged. Accordingly, instructions
laid down in the Foreign Exchange Manual for repatriation
of foreign exchange and its sale to the Authorized Dealers
should continue to be followed. The Authorized Dealers will,
however, not be required to surrender such foreign exchange
to the State Bank, Similarly, all requests from customers
for purchase of foreign exchange for all approved purposes
(including imports, invisible, debt repayment etc.) will
be met by the Authorized Dealers from the inter-bank market,
subject to the rules and regulations laid down in the Foreign
Exchange Manual, and other instructions issued from time
to time.
4.
SPREAD BETWEEN BUYING AND SELLING RATES AND RATE FOR DISCOUNTING
OF EXPORT BILLS.
While
each Authorized Dealer is free to fix its own buying and
selling rates, the spread between the spot buying and selling
rate should not exceed Rs. 0/50 per U.S.dollar. The margin
prescribed vide paragraph
4 of F.E.Circular
No. 5 of 1998, for determination of the exchange
rate applicable on discounting of export bills is, however,
withdrawn.
5.
SALE AND PURCHASE BY THE STATE BANK
With
the coming into force of the new arrangement, all foreign
exchange requirements shall be met from foreign exchange
receipts in the inter-bank market. The Authorized Dealers
would neither approach the State Bank for release of foreign
exchange for any purpose, nor would they have to surrender
it to the State Bank. However, the State bank can, and will,
intervene in the market for the ale and purchase of Foreign
exchange on its own account at rates and timing of its choosing.
6.
INTER-BANK TRANSACTIONS
In
order to allow Authorized Dealers to freely trade in foreign
currencies in the domestic market, the existing para
9 of chapter
V of the Foreign Exchange Manual is amended
to read as under:
"Inter-bank
transactions
Authorized
Dealers may freely buy and sell foreign currencies from
and to other Authorized Dealers in Pakistan provided their
net position and Nostro balances at the end of the day
remain within the limits prescribed for them from time
to time".
7.
FORWARD CONTRACTS
-
Effective
immediately, the State Bank will not provide forward
cover to Authorized Dealers. The State Bank will, however,
honour the commitments already made in respect of forward
purchases and sales at the "Official" exchange
rate by taking/making deliveries at the contracted rates.
-
Authorized
Dealers may provide forward cover for exports. Imports
and other permitted transactions for any duration, in
accordance with the conditions prevailing in the market.
Each Authorized Dealer is free to determine the conditions
for deliveries, close out etc. The State Bank will,
however, encourage the Authorized Dealers to adopt common
rules in this regard.
-
The
existing instructions in respect of forward cover on
foreign currency deposits (excluding FE 25 deposits)
remain unchanged. The rate of exchange for the purpose
of forward cover will be in the average of the closing
Inter-bank buying rate for the previous working day,
as displayed on SBP Reuter pages.
8.
CONVERSION OF FCA AND DBC/FCBS AND SPECIAL U.S.DOLLAR BONDS
Withdrawals
in rupees from foreign currency accounts will henceforth
be made at the rates as mentioned in paragraph
7(iii). Encashment in rupees of DBCs, FCBCs
and Special U.S.Dollar Bonds, and of profits thereon, will
also be made of these rates.
9.
OTHER INSTRUCTIONS
All
other existing instructions remain unchanged. Your attention
in invited in particular to the following :
-
Repatriation
to Authorized Dealers in Pakistan of full export proceeds
as prescribed vide SBP Notification no. FE 1/98-SB dated
the 8th June, 1998.
-
Permission
to exporters and importers to sell/buy, both ready and
forward, from any Authorized Dealer.
-
Retention
of export proceeds in special Exporters Account for
a period upto seven workings as, only for the purpose
of sale to an Authorized Dealer.
-
Obersvation
of "Open Position" and "Nostro"
limits.
-
Display
of rates by all branches of Authorized Dealers.
-
Submission
of returns of all foreign exchange transactions. A new
reporting system on daily basis is being introduced
separately.