Wednesday,13 December, 2017
Current issue | Issue 1293, (28 April - 4 May 2016)
Wednesday,13 December, 2017
Issue 1293, (28 April - 4 May 2016)

Ahram Weekly

Pound moves up

The pound received a boost against the dollar on the black market thanks to fresh funds from the UAE, reports Ahmed Kotb

Pound moves up
Pound moves up
Al-Ahram Weekly

After falling against the dollar to an all-time low of LE11.50 last Thursday, the Egyptian pound started gaining ground on the black market on Friday, following the announcement of an aid package from the United Arab Emirates, reaching around LE10.1 on Tuesday.

The official price of the dollar against the pound is currently LE8.88, and the Central Bank of Egypt (CBE) is allowing exchange companies to sell the dollar at LE0.1 more than the official rate.

The UAE has pledged $4 billion in aid to Egypt, half of which is to be allocated for investment in development and the other half will be deposited in the CBE to support the country’s depleted foreign currency reserves.

The announcement came during a visit to Egypt by Sheikh Mohamed bin Zayed Al-Nahyan, crown prince of Abu Dhabi and deputy commander of the UAE armed forces.

Prior to Friday’s announcement, the pound was falling sharply on the black market, with expectations of a further decline amid depleting foreign currency reserves.

The CBE has failed to curb the unofficial currency trade, even after taking several measures, most importantly the closure of 19 currency exchange companies over the last few weeks. These were closed down on charges of selling currencies at unofficial rates and speculative dollar trading.

There are 111 exchange bureaus operating in Egypt, according to the CBE.

Fears of being closed down made several exchange companies halt their operations earlier this month, but they have resumed selling the dollar at unprecedented rates over the last two weeks, which have witnessed high demand for the currency amid rumours of an anticipated depreciation of the pound by the CBE.

Experts believe that the pound might fall again against the dollar after a couple of months if foreign currency earnings do not increase, despite the inspection by the CBE of the exchange bureaus.

“The $2 billion to be deposited by the UAE will help stabilise the market for only a couple of months,” said Salama Al-Khouly, an economist at the National Bank of Egypt (NBE), noting that this has happened before with similar aid packages from the Gulf countries.

Demand for the dollar will continue to be high, and the CBE’s reserves of foreign currencies will continue to be drained due to the lack of sufficient income from abroad, Al-Khouly added.

Egypt’s economy has been suffering since 2011, and main foreign currency earners like tourism have been hit hard by the unrest that has affected the country, resulting in a sharp decline in dollar income.

Foreign currency reserves fell from about $35 billion in 2011 to reach $16.5 billion last month.

Even if exchange bureaus are closed down, they can still buy and sell the dollar at unofficial rates through their regular customers, Al-Khouly said.

Demand for the dollar, he added, is mainly driven by importers who cannot find the dollars they need in the banks and have to buy the currency on the black market. “Many exchange companies had been closed before for similar reasons, but that didn’t help bring the price of the dollar down,” he said.

The Exchange Division of the Federation of Egyptian Chambers of Commerce recently issued a press release denying its responsibility for the dollar hike on the unofficial market. It blamed the problem on the dwindling income from tourism and the decline in remittances from Egyptians living abroad.

Fakhry Al-Feky, an economics professor at Cairo University and former assistant to the executive director of the International Monetary Fund (IMF), believes the problem also lies in the “irresponsibility” of exchange bureaus.

“They are only after profits, regardless of the negative effect of this on Egypt’s economy,” he said.

Al-Feky said that he has suggested to the CBE that the national banks open exchange companies of their own, through which they could trade the dollar at “reasonable” prices compared to the black market.

“This could create an official equivalent market that would act against the speculative dollar trading that could bring the dollar rate up to LE15,” he said.

The banks, through their branches in Arab countries, could buy and sell the dollar to Egyptians living abroad at the attractive rate of around LE10, instead of letting them deal with exchange bureaus, which buy the dollar at higher than official rates, he said.

“This could bring more than $2 billion annually to the CBE from remittances,” he added.

Increasing imports are another of the main reasons behind the pressure on the pound. CBE Governor Tarek Amer announced recently that the economy could save about $20 billion annually if it dispensed with unnecessary imported products.

There is a controversy about which products are “unnecessary,” however, and whether or not some of them could be replaced by local products.

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