KARACHI: Frequent denials by the government and the State Bank of Pakistan (SBP) did not calm the anxiety in the market over the fate of Rs5,000 banknotes.
The currency hoarders’ rush to get rid of these notes has led to an increase in demand for gold in the local market.
When approached, currency dealers declined to come on the record. They told Dawn privately that a recent resolution by the Senate demanding the demonetisation of the Rs5,000 notes lends credence to rumours that after India, Pakistan is contemplating to dump the highest-value note to curb the cash economy.
On Dec 19, the Senate passed the resolution calling for the demonetisation of the highest-denomination note to fight corruption. It demanded that these notes be withdrawn from circulation.
However, the government opposed the resolution citing the reason that it could create a monetary crisis in the country hinting at the Indian crisis that persists even after 50 days of Prime Minister Modi’s demonetisation announcement .
The Senate resolution did create uncertainty in the retail market as well, as many trading entities stopped accepting Rs5,000 notes. There were several reports of customers haggling at payment counters of fast-food restaurants and superstores over the issue.
“Gold buying on future delivery heated up after the Senate resolution,” said a currency dealer. It is believed that the Rs5,000 notes are also used to keep black money in liquid form. Traders avoiding banking channels also use these notes for cash payments.
Gold prices have been increasing in Pakistan although they were already higher than the international rate. Due to excessive gold buying, the yellow metal on Friday was available at Rs50,600 per tola. Internationally, its price was around Rs46,000 per tola.
Holders of the Rs5,000 notes did not opt for the dollars, although the exchange rate is increasing in the open market. Currency dealers said a small quantity of gold can store millions of rupees.
“Demand for the dollar is not high, but its price in the open market kept increasing during the week. The dollar was available at Rs108.80 to Rs109 on Friday,” said the general secretary of the Exchange Companies Association of Pakistan (ECAP). The association did not issue rates on Saturday, although the currency market remained open where the dollar was traded in a slightly lower range.
There is a perception in the currency market that black money is being smuggled in the form of dollars, which has appreciated the dollar price in the open market. The State Bank of Pakistan (SBP) has so far succeeded in keeping the dollar rate unchanged in the interbank market.
Dealers in the interbank market said the current dollar rate is artificial and it may increase since pressure from exporters is mounting. Exports have been declining for the last three years while the current fiscal year can see a further increase in the trade deficit due to a recession in the global market as well as a higher cost of production in the country.
It was noted that banks have no problem with the Rs5,000 notes. Analysts and economists had criticised the decision to print Rs5,000 notes at the time of their launch. They agreed that the Rs5,000 notes would help increase the circulation of black money, bribery rate would go up, smuggling of currency would become easier and the purchasing power of the local currency would decline. “Time has shown their concerns were justified,” remarked an expert.
courtesy : dawn news