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Markets

Card-based cross-border transactions: authorised dealers allowed to purchase USD from inter-bank market

  • SBP confirms circular addressed to presidents/chief executives of all authorised dealers in foreign exchange
  • Customers likely to see lower rates on their cross-border credit/debit card transactions
Published May 31, 2023

The State Bank of Pakistan (SBP) has allowed authorised dealers of foreign exchange to purchase the US dollar from the inter-bank market for settlement of card-based cross-border transactions with international payment schemes such as Visa, MasterCard.

A notice, confirmed by the central bank, was issued on Wednesday to all presidents/chief executives of all authorised dealers in foreign exchange. It said the instructions are applicable with immediate effect till July 31, 2023, unless otherwise notified.

The move, which reduces demand-side pressure on exchange companies, is aimed at facilitating customers get a lower rate on the US dollar that has seen a widening gap between the inter-bank and open-markets.

On Wednesday, the rupee closed at 285.47 against the US dollar, a decline of Re0.12, as per the SBP. However, in the open market, the rupee was hovering between 311 to 315.

Zafar Paracha, general secretary at the Exchange Companies Association of Pakistan (ECAP), welcomed the circular.

“In my opinion, the SBP took the right decision at the right time. It is likely to bring down the open market’s USD rate, and reduce the gap between the two markets.”

Prior to the notice, customers were charged the open-market IUSD rate on their credit and debit card cross-border transactions. Recently, while the rupee remained largely around the 285-286 level in the inter-bank market, its value in the open market plummeted to around 315.

Market talk suggests the volume of transactions is such that it will reduce pressure in the open market, but will not cause a significant disruption in inter-bank market volume.

Comments

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Asadullah KHAN May 31, 2023 09:04pm
In my perspective, the rupee will get value in open market now, it is a very wise decision.
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Ali Bilal May 31, 2023 09:52pm
This is a welcome move. Firstly, credit card users are banked and taxes, and it's about time they got they got the benefit of using official banking channels (white money) and paying taxes. Even now credit card transactions take a 5-6% penalty due to foreign charges and FED tax. Second, prior to this move the incentive was always to buy in the black market and use that when traveling abroad. Buying in the black market was always cheaper than credit card transactions. That seemed to inventivise people to lean on money changers who ultimately could control the USD sentiment even though their volumes were small compared to commercial USD transactions. Money changers control two rates: with ID and without ID. The latter always pulls the rates up. Third, card transactions are a necessity, even if it's just for Netflix. It's also a necessity for travel which now has an official carry limit of $5,000. Everyone needs to get into the banking system. India is already mostly paperless.
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