Even if the state of calm and stability dominates The foreign exchange market in EgyptHowever, confusion still prevails in the parallel or black foreign exchange market. Like the publications on the pages that follow the Egyptian foreign exchange market on social media platforms, they talk about prices between 32 and 36 pounds per dollar.
However, US investment bank Goldman Sachs has confirmed that the real effective exchange rate model reveals that the price of the dollar against the pound is exaggerated. He added, in a recent report, that the pound is structurally undervalued. Meanwhile, the exchange rate is weakening sharply and stands at around 36 pounds to the dollar, about 33% above the official rate.
He stated that the main factor for this discrepancy is the lack of liquidity in the monetary sector, due to the weak balance of payments, and the capital outflow due to the Russian invasion of Ukraine, which has led to liquidity erosion in foreign currency in the banking sector, at the same time, foreign currency payments have become higher than the proceeds flowing into the country.
The report revealed that the current situation risks being unsustainable and, in extreme cases, may lead to an increased possibility of entering the risk of repeated currency devaluation if not addressed. But he stipulated that this would happen with the International Monetary Fund program as a hedge against that scenario.
The fund’s board will meet on Friday to discuss Egypt’s request to complete the 4-year extended financing deal, for which Egypt reached an expert-level agreement last October. At the heart of the new program, he said, was Egypt’s commitment to greater exchange rate flexibility, and that commitment could only be fulfilled if the black market in current account transactions was at least liquidated.
The report predicted that the Egyptian authorities will take a decisive step towards the liquidation of the black market, in the coming days, a step that carries risks with a significant devaluation of the pound, and the extent of the value of the devaluation will depend on the amount of currency resources funds that the Central Bank intends to use to increase supply in the official market, as well as monetary policy mechanisms that it will adopt to support the pound in terms of interest, reserve requirements and so on.
Longer-term, Goldman Sachs expects the Egyptian pound to recover from any devaluation in the near term if authorities can commit to a reliable floating exchange rate and take steps to boost confidence in the exchange rate system.
The highs won’t last long
Since the beginning of this year, the Egyptian pound has come under severe pressure, especially after the wave of monetary exodus, which official circles estimated at $20 billion during the first quarter of this year. Against the background of the crisis, the Central Bank of Egypt has twice announced the devaluation of the Egyptian pound against the dollar, the first during an extraordinary meeting in March and the second in October of this year.
Against the background of these reductions, the dollar exchange rate jumped from 15.74 pounds at the beginning of the year to the current 24.66 pounds, an increase of 56.6%.
In earlier statements, Dr. Hani Geneina, an economic analyst and professor at the American University in Cairo, said these successive increases in the dollar’s exchange rate would not last long, especially as the first tranche of the value of the financing agreement arrives. announced by the Egyptian government at the end of last October, for a value of 9 billion dollars, of which 3 billion from the International Monetary Fund.
And while Egypt’s finance minister, Mohamed Maait, had expected the first tranche Egypt will receive from the International Monetary Fund by the end of this year, worth $750 million, Egypt is expected to receive one billion dollars from the Sustainability Fund, against 5 billion from development partners.
penalties for speculators
Regarding the Central Bank of Egypt’s mechanisms for dealing with the black market, economic analyst and head of the Center for Economic and Strategic Studies in Cairo, Dr. Khaled El-Shafei said that the Central Bank of Egypt has many mechanisms to stop the speculation that has driven the dollar’s exchange rate to unprecedented levels.
He stressed that the prices announced on the black market have nothing to do with the fair value of the dollar exchange rate, especially since everything that happens is mere speculation by the main traders who have turned the dollar into a mere commodity which is speculated for quick gains.
And he underlined the need to increase penalties for those who trade in dollars outside the official market, and to control traders and speculators. He said it is possible for all parties dealing in dollars, such as private universities and travelers abroad, to deal with expenses in Egyptian pounds. He stated that the lack of supply of dollars in the official market for students and travelers is one of the doors to operate in the parallel market, and therefore speculation on the dollar is active.
In the official foreign exchange market, dollar exchange rates were stable against the Egyptian pound as trading began on Wednesday. And in the two largest banks by assets and transactions, the National Bank and Banque Misr, the exchange today registered £24.57 buying and £24.62 selling. In the Bank of the Suez Canal, the dollar price registered £24.58 for the buy and £24.68 for the sell.
In private banks, the dollar exchange rate in the Commercial International Bank recorded a level of 24.61 buying and 24.68 selling pounds, and in the Egyptian Gulf Bank it recorded 24.65 buying and 24, £68 on sale. And at the Central Bank of Egypt, average dollar prices against the Egyptian pound registered £24.59 buying and £24.67 selling.
