On the back of a crackdown on smuggling and illegal exchanges, the Pakistani rupee emerged as the best-performing currency in the world in September.

The currency appreciated from Rs305.54 against the US dollar on August 31 to Rs287.74 on September 28 against the greenback, an increase of Rs17.8 or 6.2%. The rupee is currently also on a winning run of 17 sessions, in which it has gained nearly 7% after it hit a record low of 307.1 on September 5.

The currency market was closed on Friday (September 29).

Mauritius rupee was second on the list, with an appreciation of 0.7%, whereas the Hong Kong dollar was third on the list with an improvement of 0.2% during September, according to data provided by brokerage house Arif Habib Limited (AHL) on Friday.

Experts say the rupee appreciation run is to be attributed to government’s administrative measures against dollar smuggling and hoarding.

“The appreciation comes amid a crackdown against informal channels that are used to smuggle currencies into neighbouring countries,” Sana Tawfik, an analyst at AHL, told Business Recorder.

“These administrative measures have clamped down speculative and hoarding practices of informal markets.”

Moreover, during the month, the State Bank of Pakistan (SBP) also announced structural reforms targeting Exchange Companies (ECs) sector.

Among the measures announced is the central bank directive for the commercial banks to establish their own ECs, as wholly-owned subsidiaries. Moreover, the SBP also directed to raise the minimum capital requirement for ECs from Rs200 million to Rs500 million.

“The rate between the open- and inter-bank market is narrowing. We could possibly see remittances improve, and reach up to $2.4 billion in coming months,” added Tawfiq.

“The materialisation of external flows would further subside pressure on the rupee.”

Similar sentiments were expressed by Mohammed Sohail, CEO of brokerage house Topline Securities.

Sohail said the improvement comes “after the government and regulator started taking steps to control illegal currency trade and smuggling”.

“PKR gained 6-9% in the inter-bank market against three major currencies i.e. USD, UK Pound, Euro, in last few weeks,” said Sohail in a post on social media platform X on Friday.

“In the open market, it gained 11-13%, eliminating the premium of open-market rate in spite of the US Dollar index reaching a 10-month high,” he added.

“It is unfortunate that this crackdown on Hawala trade and smuggling is being termed by few as intervention or force. We are so used to doing illegal things that once compliance is being made, we termed that as Danda,” said Sohail, dispelling the impression that the recent crackdown would be seen as ‘market intervention’ by the International Monetary Fund (IMF).

A market-based exchange rate is one of the key conditions agreed upon by the Pakistani authorities as they inked the much-needed $3 billion Stand-By Arrangement (SBA) with the IMF in July to help avert a sovereign default.