Egypt’s new dollar certificates… 8 notes
Tomorrow, Wednesday, the National Bank of Egypt and Misr, the two largest state-affiliated banks, will offer 4 dollar certificates to Egyptians and foreigners, with a minimum of one thousand dollars.
The return of the certificates is somewhat attractive and standard, as it amounts to 7% annually, and thus is the highest within the banking sector in about 40 years. It is expected that public, private, Arab and foreign Egyptian banks will initiate similar certificates, with a return close to the interest granted by the two banks.
The new certificates were well received by bankers and economists, while some embraced them with more skepticism and suspicion, especially in their usefulness in halting the value of the local currency at a time when interest rates on the dollar are rising worldwide, and the possibility of the US Central Bank raising the interest rate tomorrow for the 11th time in a row since March 2022.
Let us agree first that the National Bank and Egypt are the financial arm of the government, and the most prominent tools of the Central Bank in managing monetary policy, and therefore the step they took in issuing dollar certificates comes within the framework of government attempts to restore discipline to the turbulent exchange market, and thwart any imminent floating of the pound, or at least delay it for some time to catch a breath.
As well as trying to reduce the effects of the dangerous black market, which is one of the manifestations of the tense relationship between the government and the International Monetary Fund, and a major source of concern for both domestic and foreign investors. As well as a source of concern for Egyptian savers.
This is an essential point. As for the other points, they can be monitored as follows:
Firstly:
The interest rate offered on new certificates of 7% is not considered too exaggerated, as some try to portray. Banks operating in the wealthy Gulf countries grant an annual interest rate of 5% on dollar deposits, despite the availability of huge dollar liquidity and not suffering from a shortage of foreign exchange, as is the case in the Egyptian case. As well as banks operating in other Arab countries, whose rate ranges between 5 and 6%, with the exception of countries that suffer from severe financial crises.
secondly:
Egyptian banks are striving to attract more dollar liquidity, helping them achieve several goals, most notably bridging the dollar gap they are suffering from, which amounts to about $24.3 billion, according to the latest figures. Banks are also trying, by collecting that liquidity, to meet the foreign exchange needs of importers and traders, and to address the problem of the accumulation of goods stacked in ports, which need $5.5 billion.
Third:
The liquidity that banks can collect by issuing dollar certificates can help cover subscriptions for debt instruments, whether bonds or treasury bills, which are offered by the central bank or the Ministry of Finance in foreign exchange from time to time, and help the central bank in rebuilding foreign reserves, or paying off external debt burdens.
Fourthly:
What banks are doing in issuing dollar certificates with a standard return, can help them collect part of the huge dollar liquidity that is in the homes of Egyptians and “under the slab”, and thus reduce speculation in the exchange market somewhat, and reduce feeding the black market with new liquidity.
Fifth:
According to the statements of Muhammad al-Atrebi, President of the Federation of Banks of Egypt and the President of Banque Misr, the banking sector has dollar deposits amounting to about $50 billion, and therefore the banks do not suffer, according to the statement, from a severe shortage of foreign exchange, as some claim.
Sixthly:
The new certificates can attract dollar liquidity from abroad, whether by Egyptian expatriates or foreigners who are tempted by the high return, but some of them need guarantees and practical messages of reassurance from time to time, especially with regard to the part related to guaranteeing the return of their money on the agreed dates.
Seventh:
Regardless of these and other considerations, the question raised here is about ways to invest the proceeds of dollar certificates, what areas can achieve a return of about 10% annually, and perhaps more, so that the saver gets 7%, and the rest goes to the bank in the form of revenues and administrative expenses, and risk coverage.
Eighth:
If banks, along with the government, want these dollar certificates to succeed, they must improve the management of their proceeds, so that they are not directed to finance projects that do not generate returns in foreign exchange, even if they are electric trains, administrative and government buildings in the administrative capital, or infrastructure projects, and that priority be given to rebuilding bank dollar balances that have declined sharply in recent years, and financing imports of grain, fuel, and strategic commodities.
2023-07-25 16:23:16
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