The depreciation of the Pakistani rupee against the US dollar, which we have witnessed in recent weeks, has been blamed on the outflow of the currency to Afghanistan. The Pakistani currency touched a new all-time low of Rs172 against the US dollar and the situation could worsen.
According to reports, more than $2 million is being smuggled in the cash-starved neighbouring country every day from Pakistan. The Pakistani rupee has lost around 9 percent against the dollar in last four months. The rupee has been losing purchasing power rapidly causing a sudden rise in inflation that has badly hurt consumers.
The State Bank of Pakistan has now imposed more restrictions on the outflow of foreign currency in wake of the depreciation. All travellers to Afghanistan will be allowed to carry only $1,000 per visit with a maximum annual limit of $6,000. Moreover, all those buying more than $500 or above will have to provide biometric verification for sending the money abroad.
Before the Taliban takeover, Afghanistan relied heavily on US dollars as the local currency lost value. All trade, business transactions and local buying was also conducted in US dollars as the preferred currency. After the US withdrawal, the banking system in the country has been in disarray as people struggle to get their money out. The US used to bring around $500 million to Afghanistan every year which used to trickle down in the local market, and at the time, the dollar was cheaper in Afghanistan than in Pakistan.
This has now ended after the US pullout. The United States has also seized $9 billion of Afghanistan’s foreign reserves and its central bank is bankrupt. As a result, the foreign currency has been flowing from Pakistan through illegal channels to meet the demand there. This calls for urgent action to stop the illicit flow of foreign currency from Pakistan and stop the rupee’s depreciation.
It is also essential for authorities to stop the hoarding and smuggling of US dollars particularly by money exchange companies. The failure to do so will certainly worsen the economic condition. The situation in Afghanistan is adding fuel to the depreciating currency which should be stopped immediately.