After the devaluation of the Egyptian pound.. when will the black market end?

Central Bank of Egypt (Anatolia)

The Central Bank of Egypt, as usual, in its operations to reduce the price of the pound against the dollar, took three parallel steps together, which were raising the interest rate, reducing the price of the pound against the dollar, and the two largest government banks offering certificates of deposit with high interest on the sixth of this March. These are the same three steps that It was carried out by the Central Bank with the devaluation of the pound exchange rate in November 2016.

The Central Bank aims to push dollar holders to get rid of it and replace it with the Egyptian pound to benefit from the interest rate difference. If the interest on the dollar in the United States reaches 5.5%, and on three-year dollar certificates of deposit issued by Egyptian government banks, it reaches 7%. It reaches 9%, but the interest is obtained in Egyptian pounds in advance, while new savings certificates in Egyptian pounds have a return of 30% in the first year, 25% in the second year, and 20% in the third year.

This similar large difference in interest rates had caused, in 1991, many Egyptians to get rid of the dollar and convert it to the Egyptian pound to benefit from the interest rate difference, in light of the stability of the pound’s exchange rate against the dollar for six consecutive years, but the issue of confidence in the stability of the dollar’s ​​exchange rate Currently, it needs practical proof, which requires some time for the public and businessmen to have confidence in the banks’ provision of the dollar to those who request it at the selling price recorded on the exchange rate screens in the bank halls, and for importers to find their needs of the dollar, even at the premium of managing a currency in which the price is higher than the recorded price. For sale with price screen.

  The delayed central response boosted the parallel rate

The government has been preparing for the expected exchange rate devaluation event for several months, through the intensive measures it took during the past month, represented by security campaigns, which were not limited to traders in foreign currencies outside the official channels according to the law, but also extended to holders of foreign currencies, which amounted to inspections. Cars and offices, despite the illegality of these procedures, as the law has permitted for 48 years the possession of foreign currencies and depositing them in banks, or transferring them abroad, and taking out ten thousand dollars when traveling outside the country.

In light of the tendency of some to invest in gold, which is linked to the price of the dollar, security campaigns were extended to some gold traders and prices were stopped for some days, as well as the interest on Egyptian treasury bills was raised until it touched the level of thirty percent.

Targeting to attract hot money, raising interest on deposits and issuing certificates of deposit last January with an interest of 27%;

To push some dollar holders to switch to depositing in high-interest pounds, in addition to leaking news of the Ras El Hekma land deal on the northern coast, and the dollar resources it will generate.

What followed was the signing of an agreement under which Egypt obtained 24 billion dollars from the Emirates, of which ten billion had already arrived and the rest within two months, and the media campaign to influence small dealers holding the dollar to get rid of it. Thus, all of these factors caused an impact on prices in the parallel market, causing the price to fall from Seventy pounds to the dollar to about fifty pounds, and with the arrival of ten billion dollars, the price fell below that, and revolved around forty pounds with the stagnation of demand, but the central delay in reducing the exchange rate, and its refusal to open documentary credits until the day before the last reduction, caused the price to rise. In the parallel market, it exceeded 46 pounds to the dollar.

  The dollar deficit in banks exceeds the UAE deal

The Central Bank took advantage of the decrease in the price difference between the official and the parallel price between 31-70 pounds to between 31-46 pounds, to start at 40 pounds to the dollar on March 6, and the price continued to rise until it exceeded fifty pounds by the end of the first day’s trading, while The price on the black market has increased to more than 55 pounds to the dollar, and thus we are facing a period of conflict between the official price and the price in the parallel market, the duration of which is determined by the banks’ ability to respond to the market’s needs for foreign currencies.

This is a process that we see as difficult and requires a few months, even after the announcement of raising the value of the International Monetary Fund loan to Egypt to $8 billion, as it will be granted in installments as usual, and the Fund’s dues during the current year amount to about $5 billion, even in the event of completion of deals to sell shares of... Government companies or the sale of new lands in the coming months, because the dollar needs are many and large, and meeting them requires some time, including the dollar deficit in the banking system reaching $29 billion until last January.

There is a need for about 7-8 billion dollars to release the goods stacked up at the ports, in addition to the goods coming on the way to the ports, and the monthly import needs that amounted to about 7 billion dollars on average last year, in light of the rationalization of imports, while there has been pent-up imports since February 2022 until now. This means an increase in the average monthly imports in the coming months.

In addition to the late dues of oil and natural gas companies, as well as the value of the late profits that foreign companies operating in Egypt wish to pay, and service payments for banking, insurance, tourism, health, educational, engineering, entertainment, and sports services, and other openings of credit card limits for travelers abroad, as well as foreign debt installments and its due interest, so that In the case of renewal of Arab deposits and debts, there are dues for bonds and international and regional institutions that cannot be delayed, in addition to the interest of short-term debt in the event of postponement of payment of its installments, and the approaching Ramadan Umrah, which requires a large amount of Saudi riyals.

In addition to this, the current economic conditions, represented by the decline in revenues from the Suez Canal, the decline in foreign direct investment, the delay in transferring foreign companies operating in Egypt in transferring their profits abroad, the need for the production cycle in export companies to manage raw materials and production requirements, and the low credit rating of Egypt, which makes the task difficult. Offering bonds on international markets, as happened after the devaluation of the pound in 2016, which brought in $6 billion alone in 2017.

The recent rise in the price of gold globally came a few days ago to historically unprecedented levels, when it reached $2,142 per ounce, which prompts gold buyers to keep it.

Hoping for an increase in its price, with the expected reduction in the US dollar interest rate during the second half of this year.

From all of the above, it is clear that banks must provide an alternative to the market instead of the need for the black market. Without that, it will continue, at least to meet the needs of smuggling activities of goods, drugs, weapons, and others.

The opinions expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera.