Pakistan, May 8 -- In response to increasing tensions with India, the State Bank of Pakistan (SBP) has instructed commercial banks to closely monitor the outflow of US dollars. Officials fear that further escalation could raise demand for dollars, putting pressure on Pakistan's already fragile economy. Currency dealers, however, say that so far there has been no unusual rush to buy dollars in either the interbank or open market.

A major concern is the dominance of Indian exchange companies in handling remittances to Pakistan, especially from the Middle East. Over 90% of remittances are said to flow through these firms. Experts warn that in the event of a full-scale conflict, India could use its influence over these channels to economical...