The SBP restricts cash dollar transactions in a major policy shift aimed at promoting a cashless economy in Pakistan. Under the new guidelines, banks and exchange companies are required to transfer foreign currency directly into customer accounts, rather than issuing cash. This move enhances regulatory oversight and aligns with the central bank’s broader vision of a more transparent financial system.
Overview of SBP’s Cash Dollar Restrictions
The State Bank of Pakistan (SBP) recently issued a circular detailing restrictions on cash dollar transactions. These regulations mandate that all foreign currency sales intended for deposit into resident Pakistanis’ foreign currency (FCY) accounts must be executed through account-to-account transfers.
Key points include:
- Cash dollars for deposit purposes are no longer issued.
- Purchases must go directly into the buyer’s FCY account via bank transfer or cheque.
- Individuals without an FCY account cannot buy cash dollars for deposit.
Who Is Affected by the New Rules?
The new policy primarily affects:
- Individuals depositing foreign currency: Buyers must have an FCY account to receive funds.
- Exchange companies: They can no longer provide cash dollars for deposits, affecting their cash management operations.
- Bank-owned exchange outlets: Likely to benefit as more customers move to authorized bank channels for currency transfers.
However, certain exceptions apply. Purchases for travel, education, or religious pilgrimage remain permissible in cash, provided proper documentation, biometric verification, and declared purpose are submitted, especially for amounts exceeding $500.
Benefits of Account-to-Account Dollar Transfers
The SBP expects the policy to bring several advantages:
- Enhanced transparency: Direct transfers reduce the risk of illicit cash flows.
- Streamlined banking processes: Bank-owned exchange companies may see increased customer traffic.
- Cashless economy promotion: Aligns with SBP’s vision of a digital-first financial system.
Challenges and Industry Concerns
While the new rules have potential benefits, industry experts have raised some concerns:
- Longer processing times: Interbank transfers for dollars may take at least five days. Transactions for euros or pounds could take up to 25 days if processed through different banks.
- Limited competition for money changers: Restrictions prevent them from holding cash dollars in bank accounts, reducing their ability to compete with bank-affiliated exchange companies.
- Operational adjustments: Exchange companies must update systems and verify customer accounts before transfers, adding administrative load.
What Individuals Need to Know
If you plan to buy foreign currency in Pakistan:
- Ensure you have an active FCY account before attempting to deposit cash dollars.
- Keep proper documentation ready, including identification, purpose of purchase, and biometric verification.
- For amounts over $500, submit detailed paperwork, especially for travel, studies, or religious reasons.
- Expect processing delays for transfers, particularly if funds are being deposited across different banks.
Expert Opinions on SBP’s Policy
Currency analysts suggest that the SBP’s directive will eventually strengthen regulatory compliance and push individuals toward formal banking channels. However, they warn of short-term inconveniences, including longer clearance periods and the potential for reduced liquidity in the cash dollar market.
Conclusion
The SBP restricts cash dollar transactions as part of a broader effort to modernize Pakistan’s financial system and ensure transparency in foreign currency operations. While this move may initially cause delays and operational challenges for money changers and customers, it ultimately promotes a safer, cashless economy and strengthens the role of authorized banks in currency exchange.
