Pakistan finally enters world of (nearly) unrestricted FX trading

Rick Steves

Pakistan has committed to introducing reforms in the foreign exchange market. The new online FX trading platform is a testament to this commitment, with the plan presented to the IMF. This platform is expected to enhance transparency and efficiency in the forex market, and it will be integrated with all banks, going live by the end of January 2024.

The State Bank of Pakistan (SBP) has unveiled a groundbreaking foreign exchange trading platform for interbank transactions, marking a significant advancement in the nation’s financial sector. This platform, named FX Matching, is a key component of the SBP’s Vision 2028 initiative, aimed at enhancing the digital financial ecosystem in Pakistan. FX Matching is specifically designed for the trading of US dollars against Pakistani rupees among authorized dealers.

A notable feature of FX Matching is the anonymity it offers until a trade match is made. Dealers can quote or respond to quotes without revealing their identities, fostering a more open and unbiased trading environment. The platform sets a minimum trading lot size of $500,000 and its multiples, and participants can establish credit limits with their counterparts.

Pakistan banks must use FX Matching platform for all interbank FX transactions

Effective from January 29, 2024, banks are mandated to use FX Matching for all interbank foreign exchange transactions that impact the foreign exchange exposure limit. Additionally, when the Federal Reserve Bank of New York is closed but the Pakistani market is open, trades will be conducted in Tom value.

This move aligns with recent recommendations from the International Monetary Fund (IMF), which advised Pakistan to avoid exchange rate restrictions and to limit SBP interventions in the FX market to reserve-building purposes. The IMF has also urged for the elimination of existing exchange restrictions and multiple currency practices.

In line with these recommendations, Pakistan has committed to introducing reforms in the foreign exchange market. The new online FX trading platform is a testament to this commitment, with the plan presented to the IMF. This platform is expected to enhance transparency and efficiency in the forex market, and it will be integrated with all banks, going live by the end of January 2024.

However, the country faces economic challenges, as evidenced by the recent decline in foreign exchange reserves held by the SBP, which dropped by $1.2 billion to $4.5 billion. This decline is partly due to repayments to Emirates NBD Bank and Dubai Islamic Bank.

Overall, the introduction of the FX Matching platform is a significant step for Pakistan, promising to modernize its forex trading practices and align them with international standards.

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