In response to growing geopolitical tensions with India, the State Bank of Pakistan (SBP) has issued a directive to all commercial banks, instructing them to closely monitor the outflow of US dollars from the country. This move underscores the central bank’s concern about the potential economic implications of an escalation in hostilities between the two neighboring nations.
According to a report by Dawn, the SBP’s latest instructions are a precautionary measure aimed at managing the financial stability of Pakistan. Authorities fear that any significant uptick in conflict could trigger increased demand for the US dollar, traditionally viewed as a safe-haven currency during periods of political or economic uncertainty.
Despite the heightened vigilance, market conditions remain relatively stable for now. Individuals and businesses engaged in foreign exchange transactions—both within the interbank system and in the open market—have not yet shown any signs of panic buying. Traders report that there has been no unusual spike in demand for the greenback, suggesting that the directive is a proactive, rather than reactive, measure.
A significant dimension to this development lies in the structure of remittances sent to Pakistan by overseas workers, particularly those based in the Gulf region. Currency dealers have highlighted that over 90% of these remittances are processed through exchange companies based in India. These companies, which operate extensive networks across the Middle East, Europe, and North America, collect foreign currency from Pakistani expatriates and facilitate transfers to Pakistan through licensed banking channels.
The importance of these Indian-based exchange firms to Pakistan’s foreign exchange inflows cannot be overstated. Their established infrastructure enables billions of dollars in remittances to flow into the country annually, playing a vital role in sustaining Pakistan’s balance of payments and foreign reserves. However, given the fragile diplomatic climate, there is rising concern among financial stakeholders that a prolonged conflict could disrupt these channels.
According to insiders within the currency exchange market, any deterioration in diplomatic or economic ties could give India leverage over these financial conduits. In the event of a full-scale conflict, the potential exists for these Indian firms to be used as tools of economic pressure against Pakistan. The disruption of this remittance pathway could have serious consequences for Pakistan’s foreign exchange reserves and liquidity.
To incentivize the flow of remittances through formal banking channels, the SBP currently offers Indian exchange companies a payment of Rs. 15 to 20 per US dollar remitted into Pakistan. These incentives, paid in dollars, aim to encourage continued cooperation and the formalization of inflows. However, the dependency on foreign entities, particularly those based in a rival country, has now come under renewed scrutiny.
The SBP’s move to intensify oversight is seen as part of a broader strategy to safeguard the country’s financial stability in the face of external risks. While no immediate disruptions have been reported, the evolving geopolitical situation has placed foreign exchange policy and cross-border financial monitoring at the forefront of national economic security planning.