Pakistan Cracks Down On Illegal Currency Markets After Rupee Falls

Men wait near currency exchange shops in Peshawar on September 8, following their closure by the government.

The devaluation of the Pakistani rupee, along with soaring inflation, critically low foreign reserves, and rising fuel prices, has brought significant hardships to the country's citizens and placed considerable strain on the cash-strapped caretaker government.

In an effort to bolster Pakistan's financial stability, Islamabad has undertaken investigations and closures of illegal hundi-hawala currency exchange shops such as these in Peshawar.

The hundi-hawala system, a traditional method of money transfer, operates through a network of brokers known as hawaladars, who facilitate money transfers for clients outside the conventional institutional framework.

A man speaks with a currency dealer at a foreign exchange shop in Peshawar. More than 45 shops were closed in Peshawar’s Chowk Yadgar area --  the province’s largest currency market -- following the government crackdown.
 
With their closure, Islamabad aims to quash money laundering, terrorist financing, and tax evasion while also ensuring government oversight and control over financial transactions, thereby safeguarding the stability and integrity of its financial systems.

A man reads a newspaper outside a closed currency exchange shop in Peshawar. 

Pakistan’s rupee is the worst-performing Asian currency this quarter, depreciating nearly 6 percent against the dollar and establishing a new record low in September.

 

The crackdown strengthened the rupee by almost 10 percent in one week, easing pressure on the key interbank market.

“We complained and requested the army chief take action against elements who were coercively taking our customers away from outside our exchange companies to buy and sell dollars on the black market,” Malik Bostan, president of the Forex Association of Pakistan, told Arab News. 

An employee of a foreign exchange shop counts U.S. bank notes from behind a glass window in Karachi.

Bostan said over 90 percent of the exchange business had been diverted to the black market, adding that exchange companies were losing massive chunks of business. 

A man sits near a currency exchange rate board in Peshawar.

Existing exchange companies that meet the minimum capital requirement are to be consolidated into a single category. The closure of the illegal exchange business coincides with a renewed focus on tackling the problems of commodity hoarders and electricity and gas thieves.