**Dollar Shortage Threatens Rupee’s Fragile Stability**
KARACHI—The Pakistani rupee is increasingly vulnerable as the demand for dollars intensifies amidst a severe cash dollar shortage faced by exchange companies across the nation. Currency experts caution that administrative policies designed to support the rupee may eventually backfire, especially amid unpredictable crises like the recent widespread flooding in the country.
Despite rising demand and dwindling supply, the rupee has seen an appreciation since the government imposed stricter regulations in July. Nonetheless, many experts express concern that this trend may be unsustainable if the dollar demand persists.
Currently, many currency dealers report a dwindling supply of US dollars, which raises alarm over potential hoarding and illegal currency operations. “While smuggling has been largely curtailed, there is a growing risk of hoarding,” commented one currency dealer, who believes unauthorized operators might be fueling the crisis.
Faisal Mamsa, CEO of Tresmark, echoed these cautions, emphasizing that artificial measures cannot withstand the market’s true forces. “Administrative actions have bolstered the rupee in the open market, yet this strength is mostly illusionary given the drop in cash transactions,” he stated.
Administrative interventions are designed to counter market imbalances, yet Mamsa warned that these might backfire, pushing remittances towards unofficial channels or cryptocurrencies, which continue to appeal as attractive alternatives for currency transactions.
Dr. Inayat Husain, Deputy Governor of the State Bank of Pakistan, highlighted to a National Assembly committee that the rupee’s recent robustness is partially due to increased inflows and stringent controls. The State Bank has actively intervened, purchasing $7.8 billion to elevate foreign reserves to $14.5 billion—a maneuver officials argue was necessary to counter perceived artificial valuation and ensure external stability.
However, exporters withholding earnings further tighten the dollar supply, producing an uneasy market calm. Should currency inflows stagnate further, this tenuous situation could lead to a volatile and rapid adjustment of the rupee’s value. “Historically, markets invariably self-correct,” remarked Mamsa.
Amid these challenges, some opportunities emerge as Pakistan could benefit from the US’s 50% tariff on Indian textiles, revealing a $16 billion market void. Pakistan, currently subject to a 19% tariff on its exports to the US, finds itself in a slightly advantageous position over Bangladesh and Vietnam, facing 20% tariffs.
The delicate balance of Pakistan’s currency landscape continues to unfold amidst both cautionary advice and potential economic openings as market forces navigate these turbulent waters.
