Pakistan spy agency targets dollar black market to curb rupee slide

KARACHI: A deputy chief at Pakistan’s spy agency met with currency exchange firms this week amid a sharp slide in the rupee, leading to a crackdown on black market dollar trade, the head of the country’s forex association told Reuters on Thursday.

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The move marks the second such intervention, following a 2023 army clamp down that halted an earlier sharp plunge in the currency, helping stabilise the exchange rate until this month.

Currency dealers say the rupee is again under pressure as a result of dollar hoarding, cross-border smuggling, and banking restrictions that have driven demand to unregulated dealers offering quicker or better rates.

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The information about the meeting was given by Malik Muhammad Bostan, chairman of the Exchange Companies Association of Pakistan, to Reuters.

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Following the meeting, security forces, including the Federal Investigation Agency — a civilian security agency — began targeting illegal currency dealers, many of whom subsequently went underground, he said.

The open market dollar rate was down one rupee following the intervention, said Bostan, who credited the enforcement drive and a resulting improvement in the supply of dollars to the market.

A spokesperson for the military’s media wing did not immediately respond to a request for comment.

SUPPLY IS UNDER STRAIN

Border controls with Iran and Afghanistan were tightened during tensions with India earlier this year, curbing illicit currency flows. But with checks now eased and the central bank buying dollars to build reserves, formal supply is under strain, Bostan said.

Under Pakistan’s $7 billion programme with the International Monetary Fund, authorities have pledged to keep the gap between the interbank and open market rates within 1.25 per cent to prevent remittances – crucial to maintaining foreign exchange levels — from shifting to informal channels and eroding reserves.

Despite this week’s crackdown, dollars are still not available in upscale areas of the commercial hub Karachi, pushing buyers to the grey market, where rates remain about 5 per cent above interbank, said Adnan Sheikh of Pakistan Kuwait Investment Company.