KARACHI: The central bank on Friday allowed exchange companies to enter forward sale transactions with authorised dealers (banks) for up to five working days against receipt of home remittances, a move that could boost remittance inflows and improve liquidity management in the currency market.
Furthermore, exchange firms are required to surrender 100 per cent of the foreign currency received from inward home remittances in equivalent US dollars to the interbank market, regardless of whether they utilise the forward sale facility.
These decisions follow amendments made by the State Bank of Pakistan (SBP) to the regulations relating to inward home remittances for exchange companies.The SBP said in the circular that exchange companies may engage in forward sale transactions against the receipt of inward home remittances with authorised dealers (ADs), subject to specific terms and conditions. If the forward sale transaction is for less than five working days, the contract period may be extended. However, the total duration of the contract, including any extension, must not exceed five working days.
Forward sales can be booked based on the expected inflow of remittances scheduled until the settlement date, the circular said. To facilitate this, the company must provide the authorised dealer with copies of remittance advices (SWIFT copies) from money transfer operators (MTOs) for the previous 15 days, along with the tentative frequency of foreign currency receipts from these MTOs. The daily average of inward remittances received over the preceding 15 days will serve as the benchmark for calculating the amount of the forward sale contract.
Zafar Paracha, president of the Exchange Companies Association of Pakistan (ECAP), in a statement, hailed the SBP’s decision to introduce a structured and transparent mechanism for the forward sale of inward home remittances.
He stated that the newly introduced framework reflects the SBP’s proactive and pragmatic approach toward strengthening formal remittance channels and improving liquidity management within the exchange company sector.
Paracha highlighted that allowing exchange companies to undertake short-term forward sale transactions, based on actual remittance trends, will help reduce market uncertainties, improve operational planning, and enhance efficiency in foreign exchange management. He further noted that the requirement of surrendering 100 per cent of foreign currency in the interbank market ensures transparency while supporting the country’s foreign exchange reserves.
“The initiative demonstrates the State Bank’s commitment to engaging with stakeholders and addressing the genuine challenges faced by exchange companies,” he said. This will not only facilitate better compliance but also encourage increased flow of remittances through formal channels.”He also acknowledged the balanced safeguards incorporated in the policy, ensuring that the facility is utilised responsibly while preventing any potential misuse.
