Pak Offers No-Questions Dollar, Pound Bonds

Pakistan, seeking to bring in more hard currency, on Tuesday offered new dollar and pound sterling bonds for sale without questioning the source of buyers funds. No questions shall be asked about the source of funding, Finance Minister Sartaj Aziz told a news conference as he announced the launching of the three-year Foreign Currency Bearer Ceritificate (FCBCs). Reuters

These certificates will replace the five-year FCBCs issued in 1992 (in dollars, pounds, yen and marks) and is an improvement on the previous issue, he said of the scheme, mainly aimed at foreigners and overseas Pakistanis.

The 1992 offer had led to a row with U.S. regulators who asked Islamabad to halt the sale of the bonds, arguing that they could help money launderers.

 

Aziz said Islamabad had written to authorities in the Middle East about its scheme and would launch a campaign for the sale of the certificates as soon it got permission.

In the rest of the counties, wherever needed, we will seek permission, he added.

Asked if old charges that such certificates would be used to whiten illegal black money could be levelled again, Aziz said: It has been going on now for 10 years and I dont think that problem has really surfaced.

He said the fact that Pakistans capital account was now convertible through the Foreign Exchange Bearer Cerificates) or FCBCs was a very important safeguard.

Because normally if you convert it (certificate) openly and there is a run on the bank, then you lose your reserves. In this case, if there is more demand, the premium will go up, he said.

Last year, when we (the present government) came, it was one percent and now it was...close to four percent. If there is more demand and people want to send out more dollars, then it will go up to 10 percent as it did in 1996 and the demand will be choked up. So it is a self-correcting mechanism.

Aziz said the new certificates to be offered in dollars in the denominations of 1,000, 5,000, 10,000 and 100,000 and in pounds 1,000, 5,000, 10,000 and 50,000 would be at par for three years from the date of issue and could be encashed after six months.

The principal and profit on the certificates will be guaranteed by the Pakistani government and there is no limit on investment and income is exempt from income tax, wealth tax and Zakat (Islamic tax), he said.

There will be no penalty for early encashment. Profit on these certificates is at floating rate.

The certificates would be tradable on stock exchanges and could be discounted by banks in Pakistan also after six months from the date of issue, with higher profit for longer period, Aziz said.

He said profit would be payable at Barclays Banks bid rate for six months as published by the State (central) Bank of Pakistan.

Payment for purchase of the certificates can be made from a foreign currency account held in Pakistan, remittance from abroad in favour of the office of issue, tender of respective foreign currency notes or travellers cheques issued from abroad or encashment proceeds of Foreign Exchange Bearer Certificates, Aziz said. There will be no restriction on possession, import or export of these certificates.