SBP sets limits for foreign currency purchase to discourage speculative gains

KARACHI: The State Bank of Pakistan (SBP) on Monday said the limits of foreign currency buying by individuals have been set to discourage speculative transactions.

The SBP has set a limit of $10,000/day/individual and $100,000/year/individual to check the foreign currency transactions.

“It has been observed that substantial amounts of foreign currency was being purchased for speculative gains. Such speculative transactions led to excessive demand in the open market, which ultimately leads to appreciation in foreign currency rates and an increase in the interbank, Kerb premium,” the SBP said.

This adversely affects a large number of people who need foreign currency to meet their genuine needs of travel, education, medical, etc, the central bank added.

In the wake of the massive decline in the rupee value against the dollar, the central bank amended regulations, governing the sale of foreign exchange to individuals by the exchange companies.

Giving rationale to the amendment, the SBP said the step is in continuation of other measures being taken by the central bank and is primarily to discourage speculative buying and selling of foreign exchange from the exchange companies without affecting the ability of the market to serve the genuine needs of the public.

The central bank said genuine needs of the general public for travel, family maintenance abroad and other personal needs will be adequately met within the limits prescribed under these regulations, ie, $100,000/person/year and $10,000/person/day.

The SBP said in addition to these limits on the purchase of foreign currency from exchange companies, the general public can also use banks for meeting medical and education expenses up to $50,000/invoice and $70,000/ student/year, respectively.

“Further, in case of additional genuine requirements, [the] Foreign Exchange Operations Department (FEOD) of [the] SBP Banking Services Corporation may be approached for permission through banks’ foreign exchange portal,” the central bank added.

The documents have not been specified in the regulations to provide necessary flexibility to the exchange companies and their customers. However, the SBP said: “The objective of these regulations is to ensure that the foreign currency is used for the purpose for which it has been purchased.”

The examples of documents substantiating the purpose may include a copy of passport, valid visa (if applicable) and ticket for travel purposes. For medical expenses, a copy of invoice/estimation from the foreign hospital and a certificate from the medical specialist/medical superintendent of a hospital may be required.

For educational expenses, a copy of CNIC or passport of the student, letter of admission from foreign educational institution or letter/cost sheet from foreign educational institution, showing breakup of expenses may be solicited, the SBP said.

There are certain undertakings required for the purchase of foreign currency by individuals. The SBP explained that the customer will provide an undertaking in writing specifying that he/she has not purchased, from all exchange companies, FCY in excess of $100,000 during the current year (from December 20, 2021 to December 31, 2022) or FCY in excess of $10,000 on the day of purchase.

“Further, these limits will not be breached after the current transaction. To facilitate the customers, the exchange companies may prepare printed forms of such undertakings,” the SBP added.

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