(MENAFN- Gulf Times) Frequent denials by the government and the State Bank of Pakistan (SBP) has not helped much to calm market anxiety over the fate of the Rs5,000 banknotes.
A rush by currency hoarders to get rid of the notes has led to an increase in demand for gold in the local market.
Currency dealers, however, declined to come on the record. They privately said that a recent resolution by the senate demanding demonetisation of the Rs5,000 notes lends credence to rumours that after India, Pakistan is contemplating dumping the highest-value note to curb the cash economy.
On December 19, the senate passed a resolution calling for the demonetisation of the highest-denomination note to fight corruption. It demanded that these notes be withdrawn from circulation.
However, the government opposed the resolution citing that it could create a monetary crisis in the country, hinting at the Indian crisis that persists even after 50 days of Prime Minister Modi's demonetisation announcement.
The senate resolution did create uncertainty in the retail market as well, as many trading entities stopped accepting the Rs5,000 notes. There were several reports of customers haggling at payment counters of fast-food restaurants and superstores over the issue.
'Gold buying on future delivery heated up after the senate resolution, said a currency dealer. It is believed that the Rs5,000 notes are also being used to keep black money. Traders avoiding banking channels also use these notes for cash payments.
Gold prices have been increasing in Pakistan although it is already higher than the international rate. Due to excessive buying, the yellow metal on Friday was trading at Rs50,600 a tola. Internationally, the price was around Rs46,000 per tola.
Holders of the Rs5,000 notes are not opting for the dollars, although the exchange rate is increasing in the open market. Currency dealers said a small quantity of gold is equivalent to millions of rupees.
'Demand for the dollar is not high, but its price in the open market has kept increasing during the week. The dollar was available at Rs108.80 to Rs109 on Friday, said the general secretary of the Exchange Companies Association of Pakistan (ECAP).
The association did not issue rates yesterday, although the currency market remained open where the dollar was traded in a slightly lower range.
There is a perception in the currency market that black money is being smuggled out in the form of dollars, which has lifted the dollar price in the open market. The State Bank of Pakistan (SBP) has so far succeeded in keeping the dollar rate unchanged in the interbank market.
Dealers in the interbank market said the current dollar rate is artificial and it may increase since pressure from exporters is mounting.
Exports have been declining for the last three years and the current fiscal year can see a further increase in trade deficit due to a recession in the global market as well as a higher cost of production at home.
Analysts and economists had criticised the decision to print the Rs5,000 notes at the time of its launch. They felt the notes would help increase the circulation of black money, smuggling of currency would become easier and the purchasing power of the local currency would decline. 'Time has shown their concerns were justified, an expert said.
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