Freeing up forex
Foreign exchange companies are hoping that new government regulations will mean more business and an improved image
New government regulations announced last week have come as a breath of fresh air for forex companies. Over the past two years, a stagnant currency market coupled with a host of legal problems have all but brought their businesses to a halt, reports Niveen Wahish.
In an attempt to control speculation, the new forex regulations prohibit forex companies from playing any role in determining the value of the pound. In fact, the executive charter of the 1994 Foreign Currency Law was modified on the same day that the new regulations were announced.
The modifications state that forex companies be forbidden from setting buy and sell prices of foreign currencies. Additionally, each forex company has to agree with a specific bank to trade at the price that it sets. The forex company must make it clear to its clients that its rates are those of the nominated bank.
Forex companies are also obliged to report the size and rate of its transactions every hour until four in the afternoon. Any transactions that take place after that time are reported to the Central Bank of Egypt (CBE) at eight the following morning.
In spite of all of this, the forex companies are not complaining. "This is our chance to play a role in the market," said Mohamed El- Abyad, head of the Foreign Exchange Companies division at the Egyptian Federation of Chambers of Commerce. "If we, as forex companies, want to continue in the market, all companies should take responsibility [to ensure that] the system succeeds," he added.
El-Abyad explained that the new regulations make it necessary for the forex company and the bank it chooses to deal with to sign a written contract. That contract should last for no less than three months, meaning that a forex company cannot keep switching partners. The contract will also mean that the forex company will operate according to that bank's rates. The contract between the bank and the forex company must be approved by the CBE.
Over the past two years, forex companies have often been blamed for speculative activities. Many were closed down temporarily or their owners jailed for selling at rates higher than the official price. Those which were open were often not doing any business because there was no movement on the market.
"We had to stay open, run all the overhead costs, but there was no business," said El- Abyad. However, El-Abyad is optimistic that the new system will stimulate the market. Indeed, CBE governor Mahmoud Abul-Oyoun has even said that forex companies could be considered as branches for banks.
Within this framework, a forex company with surplus hard currency at the end of a day's trading would be able to sell it back to the bank for an agreed upon price.
The new regulations also enable banks to supply forex companies with additional resources to buy currency in times of need.
Additionally, El-Abyad stresses that, "there will be no raising of the buy price under any pretext, not even for large amounts, except with prior permission from the partner bank." Previously, forex companies would give an individual selling large amounts of hard currency at slightly higher price than the market rate.
El-Abyad insists that the new system be allowed to work. "This is our last chance to prove that forex companies were not the cause of the failures of previous systems."
