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As discussed in Chapter V, unlike the previous FCA
schemes, FE 25 does not provide Rupees liquidity to mobilizing banks. The hard currency
mobilized between July 1998 and July 1999, was placed abroad directly by the commercial
banks, while the FE 13 Circular announced in June 1999, effectively compelled banks to
place fresh deposits with SBP. Two issues need to be noted: (1) discretionary placement
abroad by banks became a source of concern in terms of the risk characteristics of the
assets, and (2) the thrust of FE 13 was to encourage mobilizing banks to lend the hard
currency in Pakistan with a fallback option of placing the funds with SBP. However, as
banks were unable (or unwilling) to lend locally, all fresh FCAs were placed with SBP.
