The Egyptian pound ended the year at its lowest level since 2004, raising fears about possible repercussions – Published on Al-Ahram weekly online, by Sherine Abdel-Razek, Jan 2, 2013.
Devaluation has always been the Egyptian economist’s greatest fear. However, this is no longer the case, since it is already happening.
The Egyptian pound lost almost three per cent of its value during the first two days of this week to reach LE6.39 against the US dollar on Monday. This was after it had survived a post-revolutionary drain of foreign currency resources that had stripped it of six per cent of its value to the beginning of December.
The unprecedented decline in the value of the pound comes as the Central Bank of Egypt (CBE) introduced a set of new policies aiming at rationalising demand for dollars and determining the dollar/pound exchange rate according to force of supply and demand.
A daily auction will be held between the CBE and the banks in which the CBE will either buy or sell dollars according to market needs.
Bankers have described the new system as a move toward establishing a free-market value for the pound, which has been tightly controlled since a managed devaluation that ended in 2004.
On Sunday and Monday, the CBE sold a total of $150 million to the banks to cover their needs, with the latter covering the needs of foreign-exchange offices to tame fiercely rising demand for dollars.
“What is pushing the dollar high right now is overheated demand. This will subside now that more dollars are being made available to the banks through auctions,” said a banker at one of Egypt’s leading private banks.
The pressure on the pound started soon after the 25 January Revolution, when a drain on foreign currency reserves led its losing some 60 per cent of its value.
The politically driven street violence between the allies of Islamist President Mohamed Morsi and representatives of the more secular opposition last month pushed many people to buy dollars and to sell pounds, fearing that the latter could lose more ground due to the political instability.
The decline in the value of the pound against the dollar in the first two auctions held by the Central Bank may have increased demand further, according to Emad Fathi, manager of the Crown Foreign Exchange Bureau, who put the hike in demand during the first days of the week at 50 per cent.
Under the new CBE regulations, local banks will not be able to hold more than one per cent of their capital in dollars, down from the previous 10 per cent. Corporate clients will be limited to daily cash withdrawals of $30,000, and individuals who purchase foreign currencies will be charged a one-to-two per cent administration fee.
All transactions will be monitored to make sure they are for “legitimate” needs and do not involve speculation, bankers said … //
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Point to point, on Al-Ahram weekly online, by Ahmed Eleiba, Jan 2, 2013;
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