WEB DESK: It is no secret that illegal money changers have been freely operating in the country since long and earning handsome returns on their activities without paying any kind of taxes.
In order to ban their illicit activities, SBP and Federal Investigation Agency (FIA) have now joined hands to crack down on illegal foreign exchange business and signed a memorandum of understanding (MoU) on 12th August, 2016 to further facilitate the existing co-ordination between the two organisations. It may be mentioned that while SBP is the regulator of foreign exchange market, FIA takes action on complaints from the central bank.
A coordination committee has also been set up to improve coordination between the SBP and FIA within the framework of the MoU. Speaking on the occasion, President, Forex Association of Pakistan (FAP), Malik Bostan revealed that “about 30,000 illegal money changers are operating across the country.
This illegal trading not only causes a loss of revenue, but also poses a hidden risk to the country.” While Governor, SBP, said that there was a need of further action on the part of FIA against illegal money change operators, Director General, FIA assured his full cooperation to the State Bank to curb the menace of illegal exchange business.
Although it is not possible to precisely quantify the magnitude of trading in the illegal exchange market and know its exact impact on the loss of revenue, terrorist activities and other crimes in the country, the severity of the problem and the urgent need to tackle the issue cannot be denied. Former SBP Governor Yaseen Anwar had said that about $10 million was smuggled out of the country every day.
Billions of dollars are believed to have been smuggled out to Dubai and other countries in recent years and Pakistanis seem to have emerged as one of the biggest investors in the property markets of these countries. Offshore companies were also established to smuggle a lot of money from the country while FIA and other agencies either did not care much about the problem or failed to trace the source or destination of smuggled money.
Although the possibility of connivance between the legalised money changers and those sending money abroad cannot be ruled out entirely, the FAP President, Malik Bostan, has asserted that the smuggling of money is being carried out by those who are operating without licences. According to him, these unlicensed money changers should be legalised in order to force them to do business legally. Malik Bostan, however, needs to acknowledge that sometimes even legalised exchange companies have also been found to be indulging in dubious practices.
Anyhow, we feel that the SBP and the FIA have to do a lot more than signing the MoU to banish the illegal foreign exchange business. First of all, both the SBP and FIA need to act with more vigour and commitment. There is no doubt that unlicensed money changers are operating freely in the vicinity of SBP’s head office and money is flowing either way at the airports without much intervention by the FIA staff. Both the SBP and FIA do not take serious steps to check these practices except in cases which are ordered to be probed from the top management. Secondly, illegal practices would, of course, continue to exist until there is a demand for it.
For instance, demand for the services of illegal money changers could only be eliminated if exchange rates of various currencies, the speed of transferring the funds and legality of transactions were the same in all the markets. Besides, monetary policy could play a major role in determining the flows of funds from one country to another. Money could, for instance, flow out of Pakistan if interest rates were relatively lower in the country.
Lastly, money tends to flow out of countries where law and order situation is not good, poor governance and corruption in the system is rampant and infrastructure is poor for investment purposes. All in all, however, we would not say that MoU between the SBP and FIA would serve no useful purpose but would like to tell the relevant authorities that a lot more needs to be done to accomplish the intended objective.
Money is the most fungible and its movement across the borders could only be checked by providing a very hospitable environment within the domestic domain.
Source: Business Recorder