Foreign Exchange Market
The facility of back-to-back remittances and release of foreign currency against surrender of an equivalent amount of foreign currency have been withdrawn with effect from 14th October 1999.

Forward Sales/Purchases to/from the customers were temporarily suspended on 15th October 1999. However, it was restored with effect from 27th October 1999.

Unofficial cap on rupee trading band was extended from Rs 51.90 to Rs 52.10 with effect from 1st June 2000 and further to Rs 52.30 with effect from 22nd June 2000. The cap was finally removed on 21st July 2000.

In order to streamline local banking conventions in line with international standards, the State Bank of Pakistan (SBP) decided to introduce Spot value convention for all its foreign exchange and Foreign Currency-Money Market transactions with Authorized Dealers (ADs). Effective from 1st December 2000 all ADs were advised to follow the spot value convention, i.e., t+2 days from transaction date as the standard for all their afore-mentioned transactions with the SBP. They were further advised to make concerted efforts to adopt the same convention while dealing with other banks as well as with their clients.

Foreign Currency Accounts
The facility of foreign currency account maintained by the Diplomatic Missions, their diplomatic officers and home-based members of the Missions' staff in Pakistan as well as all international organizations in Pakistan and their expatriate employees was withdrawn with effect from 5th July 1999. Subsequently, some relaxations were made in connection with opening of foreign currency account by them and
withdrawal of foreign currency notes from such accounts. However, with effect from 3rd April 2000, all facilities withdrawn earlier were restored.

The forward cover fee on dollar deposits was reduced from 10.0 percent per annum to 8.0 percent per annum with effect from 9th August 1999.

The immunities of exemption from tax and Zakat deduction available to resident foreign currency account holders under Economic Reforms Act, 1992 were withdrawn with effect from 16th December 1999.

Sale of Foreign Exchange Bearer Certificates (FEBCs) and three-year Foreign Currency Bearer Certificates (FCBCs) was stopped with effect from 16th December 1999. The profits and encashment proceeds of certificates already issued up to 15th December 1999 would continue to be paid in accordance with existing instructions and the protection and immunities relating to these instruments would also continue to be available.

Transfer of frozen FCAs from one bank account to another bank account was allowed with effect from 24th February 2000 subject to conditions that status and title of the account shall remain unchanged.

With effect from 20th June 2000 the Software Houses/Companies were allowed to retain 25 percent of their export earnings in special foreign currency account with the ADs for exclusive use of payment to the overseas buyers and to meet other expenses such as promotional publicity, import of hardware/software, foreign consultants' fee etc., without prior approval of SBP.

Current Account
Industrial establishments registered as importers were allowed to import spare parts/machinery up to the value of US$ 7,000/- per fiscal year effective from 26th August 1999 against foreign currency demand draft, without opening letter of credit, provided such import is made by air or courier.

The minimum cash margin requirement on opening letters of credit (LCs) for imports of all items (except specified essential imports) was imposed with effect from 14th October 1999.

Subsequently, the minimum cash margin restrictions were withdrawn on Industrial Raw Material (w.e.f. 28t~ October 1999) and Machinery of all kinds and their spare parts (w.e.f. 1st November 1999). Whereas in respect of all other goods, the minimum cash margin restrictions were removed on selected items. Finally, the requirement of minimum cash margin on opening of letters of credit was withdrawn for all items effective from 1st July 2000.

To check any unusual increase in import of a particular item as a result of panic after military takeover on 12th October 1999, the furnishing of details of all letters of credit worth US$ 25,000 or more was made mandatory for ADs.

The rate of commission/brokerage due to foreign importers/agents by exporters in Pakistan increased from 1 percent to 2 percent against export of Raw Cotton with effect from 20th November 1999.

In March 2000, the SBP provided incentives for faster remittances through official channels by sharing the cost of using courier services with the NCBs and privatized domestic banks. Using a certain benchmark for each individual bank, the central bank offered one rupee for each additional dollar that these banks are able to bring in. Since remitters still get the inter-bank exchange rate, this incentive scheme does not entail a multiple exchange rate system.

The facility to the exporters to retain amounts in foreign currency accounts afforded vide Para 29(iii)-Chapter XII of Foreign Exchange Manual, which was withdrawn in July 1998, restored with effect from 20th June 2000.

The earlier restriction on monthly remittance for living expenses of students studying abroad have been relaxed to 3 to 4 months in advance at the options of parents/financers effective from 5th July 2000 subject to the condition that the remitter gives an undertaking that in case the studies are discontinued earlier, the excess remittance will be brought back to Pakistan by the remitter.

Instructions were issued on 21st July 2000 for exporters. In case where an exporter does not repatriate export proceeds within three days of the due date or within 4 months of the shipment date, whichever is earlier, he shall be entitled to export proceeds at the rate of exchange prevailing on the due date or at the rate prevailing on the date of realization of export proceeds whichever is lower. In respect of export bills already overdue, the exporters shall be entitled to have rupee proceeds at the exchange rate prevailing on the date of realization.

The limit for exports of bona fide trade samples free of charge by a registered exporter during a calendar year, which were exempted from the prescribed export procedure, was extended from FOB value of US$2,000 to the FOB value US$5000/-or equivalent per exporter per annum with effect from 29th August 2000.

Government of Pakistan allowed import of raw sugar of above 600 ICUMSA grade1 only, for the purpose of refining into white sugar, at zero rate of duty with effect from 26th September 2000. Raw sugar of other grades will not be accepted for the purpose of opening of LCs. LCs registration would be stopped once cumulative total reaches 500,000 tons (five hundred thousand tons). Accordingly, ADs were advised to establish LCs at cheapest possible rate from an eligible country under import policy strictly in accordance with the specified conditions.
It was clarified on 6th October 2000 that persons availing of the concessions under the 'New Tax Amnesty Scheme' and bringing in foreign exchange for conversion into Pak-rupee through ADs shall not be liable to any action under the Foreign Exchange Regulations Act, 1947.

Powers of Authorized Dealers (ADs)
The delegated powers of ADs under Foreign Exchange Manual (FEM) were restored with effect from 18th January 2000 for remittances of:

¹Ascale determined by International Commission for Uniform Method of Sugar Analysis.

Principal, interest etc. on the basis of repayment schedules registered with the SBP of purely private sector - para 51-53, Chapter XIII of FEM.

Principal and interest of foreign currency loans by Pakistani firms and companies on the basis of repayment schedules registered with SBP under para 12(ii), Chapter XIX of FEM and remittance of principal and interest on account of foreign exchange loans in terms of para 12(iii) ibid on the basis of repayment schedule communicated to SBP.

Royalty/Technical Fee/Consultancy/Supervision of installation of machinery and equipment etc. as per para 10 & 11, Chapter XIV of FEM.

Dividend to non-resident shareholders on submission of documents prescribed by SBP in terms of para 13, Chapter XIV of FEM.

The facility under which ADs were permitted to register contracts/purchase order/proforma invoices/indents etc. for imports without LC (provided the import of concerned goods is not subject to specific authorization from Export Promotion Bureau (EPB)/Ministry of Commerce and the margin restrictions imposed by BP&RD) which was withdrawn earlier in 1998, restored with effect from 18th January 2000.

The powers of ADs (who maintain Special Convertible Rupee Accounts (SCRAs) as well as offer Custodial services to the same foreign investor) to allow outward remittances from SCRA of dis-investment proceeds, dividend and broker's commission in respect of transactions taking place were restored with effect from 30th March 2000. Where foreign investors maintain custody services and SCRA with different institutions, remittances from SCRA will require prior approval of the State Bank.

The powers to allow remittance of surplus freight collections of foreign shipping companies voyage-wise were delegated to the ADs with effect from 13th May 2000. In case any discrepancy is noticed by the SBP, the agent shall have to rectify it or repatriate the equivalent amount within 7 days through normal banking channel.

Authorized Money Changers
Code of conduct for Authorized Money Changers (AMCs) in foreign exchange was issued on 3rd July 1999 which, inter-alia, included:

No person or institution that does not hold a valid license from the State Bank for dealing in foreign exchange as "money changer" or as "authorized dealer" should be engaged in the business of buying and selling of foreign exchange anywhere in Pakistan.

AMCs' activities will be restricted to purchase and sale of foreign currency notes and coins only. They shall not buy or sell travelers checks.

No transfer of funds abroad shall be made through illegal channels.

AMCs shall prominently display the rates for purchase and sale of major currencies daily at their places of business.

The AMCs shall maintain permanent books of accounts to record all sales and purchases and every transaction must be recorded in such books on a daily basis.

Dealings between AMCs and customers should be supported by receipts/vouchers for all transactions.

The financial institutions, including commercial banks, are prohibited from selling or purchasing foreign exchange from the money changers, on their own account or on the account of their clients except when they may be explicitly allowed by the State Bank. Similarly, all public sector institutions, diplomats and home-based members of diplomatic missions and expatriate employees of international organizations are prohibited for selling or purchasing foreign exchange from the money changers.

Following military takeover, all authorized money changers were directed to keep their business place closed for business on 13th October 1999. The date was further extended up to 24th October 1999.

It was clarified on 21st August 2000 that corporate bodies/legal entities cannot generate/purchase foreign currency funds from the kerb market without prior approval of the SBP. It implies that corporate bodies/legal entities can maintain foreign currency accounts under FE Circulars 25 and 31 of 1998 exclusively, from the remittances received from abroad. Corporate bodies were further asked to sell back, within 15 days, whatever foreign exchange they had already purchased from the open market.

Miscellaneous
To promote Business-to-Customer e-commerce in the country, banks operating in Pakistan were allowed to open and operate Internet Merchant Accounts in local currency or in US dollar with effect from 15th June 2000.

Keeping in view the difficulties expressed by the ADs, the following guidelines were issued on 21st July 2000 while entering into the drawing arrangements with the exchange companies:

The banks in Pakistan shall obtain guarantee of a reputable bank equivalent to one month's aggregate rupee drawings that showed the highest level in the previous year.

The replenishment from the exchange companies should be called within 4 to 5 days of the drawings.

For the specific purpose of handling home remittances, the opening of the non- resident foreign currency accounts of exchange companies operating abroad were allowed under FE-25 of 1998. The conversion into Pak Rupees, from these accounts will be made through inter-bank market.