KARACHI: Muhammad Akbar, a 37-year-old father of two who has been working as chauffer with a private airline since 1992, is among a growing number of Pakistanis who have become overnight millionaires in terms of Iranian riyals.
Many in Pakistan have accumulated the currency in large quantities, driven by what market experts call "speculative trading," betting on potential windfall gains if Pakistan succeeds in brokering peace between the United States and Iran.
Pakistan has recently positioned itself as a key intermediary between Washington and Tehran, with the country’s all-powerful Chief of Defense Forces Field Marshal Asim Munir currently in Iran and Prime Minister Shehbaz Sharif on a three-nation diplomatic tour of Saudi Arabia, Qatar and Türkiye following high-level US-Iran talks in Islamabad.
These seemingly positive diplomatic developments have fueled speculative behavior among local investors, which economist Muhammad Waqas Ghani notes as a classic case of the “gambler’s fallacy,” where investors assume that past declines in the currency increase the likelihood of future gains despite weak underlying fundamentals.
The Exchange Companies Association of Pakistan (ECAP) estimates that up to $6 million worth of Iranian riyals are being traded daily in Pakistan. The currency has surged by as much as 50 percent in local markets since reports emerged of a US-Iran peace deal amid Pakistan's mediation efforts, reaching as much as Rs15,000 ($53) per 10 million Iranian riyals, according to ECAP data.
“I got salary and came to buy the Iranian currency,” Akbar, who wants to start his own business, told Arab News this week. “I have come to buy it because tomorrow, God willing, the negotiations between US and Iran will be successful, and I will get some profit from it.”
Akbar, who earns Rs30,000 ($107.5) a month, invested Rs10,000 ($36) this week to buy 12 million Irani riyals, saying it was better than taking a loan to start business.
“I have become a millionaire,” he said. “I will start my own business. I will buy a pushcart and do some business to improve my financial condition. I will get rid of this job.”
Azam Khan, who regularly invests in foreign currencies, also got attracted and has built a portfolio of 600 million Iranian riyals so far.
“Currently, the Iranian currency is trending,” he told Arab News, buying another 70 million Iranian riyals at a money exchange in Karachi.
“I am an investor. That's why I came to buy the currency.”
'DON’T GO CRAZY'
ECAP President Zafar Sultan Paracha said Pakistanis have been “eager to buy Iranian currency” since the emergence of reports of a breakthrough in the Middle East conflict, amid Islamabad's push for diplomacy to end the crisis.
“Look, right now, small to big investors are investing in it. I don’t have exact data. But as I told you, $5-6 million [worth of Iranian riyals] is being traded [daily], and billions of rupees have been invested in Iranian currency,” Paracha told Arab News.
“There is a lot of demand. People's expectations are very high.”
The daily volumes could be even more as a lot of trading was happening in the undocumented sectors, according to the ECAP president.
Driven by international geopolitical developments, inflated demand has weighed heavily on local exchange rates.
According to ECAP data, the Iranian riyal was trading at Rs10,000 per 10 million before the conflict began on Feb. 28. The currency rose as much as 50 percent to Rs15,000 per 10 million, when the peace talks commenced in Islamabad on April 11.
Expecting a correction in the value of the Iranian riyal, Paracha urged investors to watch out:
“Don’t go crazy for anything. Invest while looking at facts, figures, and ground reality.”
Isra Ghous Rasool is one such young woman investor who is heeding the advice.
The 23-year-old business management student invests actively in Pakistan’s stock market but says the risk of investing in Iranian riyal outweighs the potential benefit.
“It’s something that’s very volatile,” she said. “There is always the possibility of a ceasefire, and then suddenly something else happens, followed by another ceasefire. There’s simply too much volatility for me to comfortably manage as an investor.”
'GAMBLER’S FALLACY'
Last month, Pakistan’s commerce ministry relaxed export rules to allow shipments of food, pharmaceuticals and tents to Iran and onward to Central Asia via Iranian territory for a three-month period ending in June. Islamabad seeks to boost declining exports and reroute trade disrupted by regional tensions.
While part of Iranian riyal’s recent “sharp melt-up” in Pakistan’s open currency market could be attributed to policy measures, it mainly remains “speculative,” according to Ghani, head of research at Karachi-based brokerage research firm JS Global Capital Limited.
The current strength in the belligerent nation’s currency was likely to remain confined to localized premiums in Pakistani market without meaningful structural reforms, sustained trade relief, and economic stabilization.
“There is a growing perception among speculators that since the currency has depreciated significantly, it is due for some appreciation,” he said, adding that Iran was facing structural stress on ground, its banking system was short of physical cash, and there was a liquidity crunch.
“This is a classic case of positioning influenced by the gambler’s fallacy rather than improving fundamentals,” said the economist.
