The Exchange Companies Association of Pakistan (ECAP) announced on Tuesday that it would remove the cap on the US dollar from January 25 (tomorrow).

The exchange rate has been primarily hit hard by a steep decline in the central bank’s foreign exchange reserves, which have shrunk to $4.6 billion. Currency experts say the rupee has been falling “despite being managed” by the State Bank of Pakistan (SBP).

Amid a shortage of dollars, the gap between its rates in the interbank and open markets has significantly widened, drastically hurting the economy and diverting remittances from the legal banking channel to the grey market.

Some experts have hinted that the shortage of dollars could cause rationing of petrol and diesel in the next two to three months, ultimately hitting the trade and industry and even the agricultural sector, which needs diesel during the harvesting season.

On Tuesday, ECAP Chairman Malik Bostan chaired a meeting of the association that was also attended by General Secretary Zafar Paracha.

In a detailed statement issued after the meeting, Bostan said that the decision to cap the dollar rate had proved to be “negative”.

“Instead of falling, the dollar rate increased resulting in the unavailability of the greenback in the market which also gave birth to the black market.”

He further lamented that citizens that wished to buy dollars for the purposes of travelling, funding their education or for health expenses were not able to do so and had to turn to the black market.

He said that the situation had created a “panic in the market”, leading the government to believe exchange companies were “deliberately blackmailing” them.

“Keeping these things in mind, we made a decision.” He further said that the association had a meeting the central bank tomorrow at 9am.

“We have a meeting with the SBP deputy governor tomorrow morning as the governor is in Islamabad,” Bostan said. “We will take them into confidence over the decision […] the cap imposed in national interest has proven to be negative.”

He further said, “The dollar rate will begin decreasing once the black market stops operating. I would like to tell the nation that exchange companies aren’t able to get dollars from anywhere and which is causing the shortage of the greenback.”

Bostan further said that under the central bank’s directives, importers were being given the dollars received through workers’ remittances. He said that the central bank believed that citizens would sell their dollars to exchange companies, but said this had also proved to be incorrect as citizens were coming to purchase the greenback.

Commenting on the SBP’s directive advising banks to “provide one-time facilitation” to importers in an effort to ease the ongoing crisis, the ECAP chairman said that this had also created “panic” in the market and increased the rate in the black market.

He said that the black market needed to be curbed. The only way to do this is to remove the cap on the dollar rate, he said.

“When people are able to purchase dollars easily, the rate of the greenback will automatically start to decrease,” the ECAP chairman said. “Remittances will also increase when the intermarket and the pre-market rate becomes the same.”

At the same time, Bostan also called on the nation to “boycott the dollar”.

“Pakistan is going through a crisis and needs each and every single dollar. They should boycott the dollar, apart from those using the greenback to undertake necessary travel or fund their education or health expenses.”