Timing plays an important role in Pakistan’s foreign exchange market. Every month, textile mills in Faisalabad, rice traders in Karachi, and surgical instrument makers in Sialkot earn dollars abroad, and the moment those dollars are converted into rupees can matter almost as much as the amount. When enough exporters decide to wait rather than sell, dollar supply in the interbank market may tighten, potentially putting pressure on the rupee.
The mechanism is fairly simple once the flows are laid out. Exporters are subject to deadlines for bringing proceeds home, while conversion timing and foreign currency retention depend on applicable State Bank regulations. If expectations point toward a weaker rupee, holding dollars for a few extra weeks may appear attractive, since each dollar could buy more rupees later. Importers may do the reverse by paying suppliers earlier. The combination, known among treasury desks as leads and lags, can drain supply and push up demand at the same time, affecting currency trading.
When exporters decide to keep their dollars for a while, banks have fewer dollars available to sell. These are the times when the rupee may depreciate, particularly when investors and businesses have doubts on the results of IMF reviews, future government budget and political developments in Pakistan. The other way round also exists. The rupee rallied significantly during the crackdown and the amount that the enforcement related dollar sales contributed to the recovery is hard to determine but the recovery was significant during the crackdown on hoarding and smuggling in 2023.
For anyone involved in the rupee market, the practical lesson is that headline figures only tell part of the story. A healthy monthly export number does not guarantee rupee strength if much of that money is still parked abroad or in retention accounts. Banks also have to balance the dollars coming in from exporters with what importers and other customers need. Analysts can watch the difference between interbank and open market rates, along with State Bank announcements, to get a sense of where the rupee may be heading before the official figures are released.
Remittances provide another source of foreign currency. Pakistani nationals in the Gulf, United Kingdom and the United States of America regularly remit money to Pakistan, thus importing foreign currency into Pakistan. These payments are used by families for rent, school fees, food and other needs. That money continues to arrive even when exporters choose to hold on to their dollars. The exchange rate offered by financial institutions and money transfer firms may also influence where workers send their wages, particularly if open market exchange rates are higher. The reasons for exporters waiting are also different. A textile factory that is experiencing high electricity costs and approaching its electricity bill payments to the electric utility supplier may wish to get a better rate for the dollars. Even a small change in the exchange rate can affect how much a business earns from an overseas sale. Larger companies can afford to keep their dollars for a while if they think the rupee will weaken. Smaller exporters often have bills to pay, so they exchange their dollars sooner.
Nobody knows exactly when these businesses will sell their dollars. But when many exporters sell around the same time, it can affect the rupee’s value. That is why anyone involved in currency trading in Pakistan needs to pay attention to exporters, not just foreign reserves and interest rates.
