The latest order from the State Bank of Pakistan requiring exchange companies to publish to the Foreign Exchange Companies’ Association their day-end closing buying and selling rates for six major currencies needs to strengthen open market transparency and governance in the foreign exchange market. The action is a component of the September-initiated FX market reforms, which aim to restrict unlawful dollar trade and outflow, lower volatility, and strengthen regulatory oversight of open market activities. The bank has already ordered the major banks to “establish their wholly owned exchange companies to cater to the legitimate foreign exchange needs of the general public to foster efficiency,” and it has given smaller exchange companies three months to become fully fledged forex firms. The government should take strict measures to control under-invoicing of imports in order to increase dollar inflows through remittances, even though the reforms are essential for the stability of the currency rate. The market cannot be completely healed by treating one symptom while ignoring others.
