To change another day

Exchange bureaus threatened with closure have received a reprieve. Pierre Loza

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The owners of 100 foreign exchange bureaus breathed a collective sigh of relief when the Supreme Administrative Court ruled that, for the time being at least, they were not obliged to raise their paid-in capital to LE10 million in order to continue operating.

The court's decision effectively places on hold provisions in the new unified banking law that stipulated forex bureaus raise their paid-in capital from the LE1 million required under the 1994 foreign currency law, to LE10 million within six months.

Following complaints that they could not meet the requirements on time bureaus were given a second six-month grace period which ended on 13 January. The bureaus then took the case to the Supreme Administrative Court which has nullified the 13 January deadline, allowing the bureaus to remain in business until the case is finally arbitrated in the Supreme Constitutional Court. That could take up to two years.

The court's decision raises questions not only over the regulatory capacities of the Central Bank but over the constitutionality of the entire unified banking law. Mohamed Amin, representing the foreign exchange companies, argues that Central Bank regulation "infringes upon private property and the law on which it is based were not voted through parliament properly".

The Egyptian constitution, says Amin, requires a documented majority parliamentary vote for laws affecting existing, as well as incoming, market entities.

"This law was not passed on the basis of a documented majority vote but on the raising of hands, which is improper conduct for this type of law," says Amin. He also argues that by dictating a company's paid-in capital the law infringes on private property and circumvents legal provisions guaranteeing "economic entities the flexibility to adjust capital according to market needs and conditions".

Bilal Khalil, secretary-general of the Forex Bureau Division, welcomed the ruling. The provisions raising capital, which originated during one of Egypt's worst currency crunches were, he believes, too heavy-handed. "This is an investment and it is questionable whether LE10 million of paid capital is an optimal investment level," he said.

Khalil detects a change in mood since 2003 when foreign exchange bureaus were accused, by the press and government, of being somehow responsible for the depreciation of the pound. On the back of increased earnings from tourism, Suez Canal receipts and high oil prices the pound has halted its slide. The Inter-Bank system, which allows banks to borrow and buy currency from one another, has, Khalil notes, allowed greater access to hard currency. Yet he remains concerned about the gap between buying and selling prices which continues to leave room for a black market to emerge. "The only reason," he says, "a black market has not re- appeared is that the pound's appreciation has been so fast."

And the gap between buying and selling prices is likely to remain wide, he says, as long as banks that bought dollars at great expense need to protect themselves against losses.

If provisions to raise the paid-in capital requirement for bureaus were motivated by the desire to reduce market players to a powerful and more easily regulated few during the frenzied devaluation of 2003, as many analysts believe, then the rationale no longer appears valid given a pound that has not only stabilised but, in the last month, rallied against the dollar. Those exchange bureaus just might be here to stay.