Islamabad, May 8, 2025: The State Bank of Pakistan (SBP) has issued a strong directive to local banks: tighten surveillance on dollar outflows.
The move comes amid growing concern that the demand for the US dollar could spike, potentially destabilizing the already fragile currency market.
Despite the SBP’s cautionary stance, currency dealers across both the interbank and open markets report business as usual.
“There’s no sign of panic or sudden rush for dollars yet,” a senior currency trader in Karachi observed, reflecting a surprising calm given the geopolitical noise.
A key factor in Pakistan’s dollar inflow lies in the remittance system, where over 90% of remittances arrive through Indian-linked exchange firms—especially from Gulf countries.
These Indian exchange networks are vast, with operational footprints in the Middle East, Europe, and the United States.
Their role? Converting local currencies into US dollars and routing them to Pakistan via formal banking channels.
Incentivized by the SBP through payments of Rs 15 to Rs 20 per dollar, these exchange firms are critical to Pakistan’s remittance economy.
However, experts warn that escalating hostilities could disrupt this flow.
“If tensions turn into war, India might use these financial intermediaries as strategic tools,” noted one currency dealer.
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Still, stability persists—for now. Zaffar Paracha, General Secretary of the Exchange Companies Association of Pakistan, emphasized, “There’s no panic in the open market.
The demand for US dollars remains steady.” He did caution, however, that a drawn-out conflict could spell trouble for both sides, particularly on the economic front.
Market indicators echo this cautious optimism. Following India’s initial military action, trading was momentarily volatile but quickly regained balance.
Both the Pakistani Rupee (PKR) and Indian Rupee (INR) held firm, though swap premiums experienced a minor uptick. Meanwhile, bond yields in Pakistan edged higher briefly before stabilizing by day’s end.
Financial experts believe that a prolonged conflict would carry serious economic consequences, but most consider a full-scale war unlikely due to mutual economic interdependence.
“The ripple effects would be too damaging for both economies, making a sustained war highly improbable,” one analyst noted.
