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Investing.com – The dollar rose on the black market in Egypt during the past few hours, despite the Central Bank’s decision to stop the use of debit cards outside the country.
On Monday, the Central Bank of Egypt announced directives to banks operating in Egypt to restrict the use of direct debit cards issued in local currency for use within Egypt’s borders only.
This decision comes within the framework of efforts to combat the black market and enhance dollar liquidity within the country.
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Moody’s downgraded Egypt by one notch to Caa1 from B3, the seventh level of high-risk rating, noting the deterioration of the country’s ability to sustain debt.
In response to Moody’s downgrade, Egyptian Finance Minister Mohamed Maait said in a statement that the government is carrying out structural reforms to confront economic challenges and is taking measures to stimulate investment and strengthen the private sector.
Egypt halved the value of its currency during the year that ended in March. However, IMF Director Kristalina Georgieva confirmed in an interview with Bloomberg on Thursday that Egypt will continue to “deplete” its reserves unless it devalues the pound again.
Last October, the IMF approved a rescue package for Egypt worth three billion dollars.
Georgieva explained to Bloomberg that there are constructive discussions taking place with Egypt, and she expects more cooperation between the IMF team and the Egyptian government in the coming weeks.
Economic experts have warned that Egypt’s rating downgrade and Georgieva’s statements will make it difficult to attract money to the country in the near term. Monica Malik, chief economist at Abu Dhabi Commercial Bank, told Reuters: “The delay in the IMF reviews and downgrade raises further concerns about the large gap in Egypt’s external financing.”
“Significant and wide-ranging reforms will be needed to increase investor confidence and capital flow,” she added.
Some also warned that downgrading Egypt’s credit rating may push foreign investors to flee local debt instruments, which will lead to higher domestic returns and exacerbate the budget deficit. Such a move could also harm capital adequacy ratios in local banks, according to Reuters.
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Attempts to stifle the black market
Sahar El-Damaty, former Vice President of the Bank of Egypt, confirmed that suspending transactions using direct debit cards outside Egypt is considered a temporary measure as a result of the pressures of foreign exchange shortages and the spread of the black market for foreign currencies.
She pointed out that the banks took this measure in February 2016 due to the pressures of the currency shortage and it was revealed that some customers were misusing withdrawals from outside Egypt for trade purposes and not for personal use, while the banks were facing the crisis of foreign exchange shortages.
Abdel-Al, the banking expert, pointed out that customers’ misuse of cash withdrawals outside Egypt using debit cards led to the imposition of these restrictions, and he explained that customers can still use credit cards outside Egypt instead of direct debit according to the limits available from each bank.
According to banking expert Maged Fahmy, the banks’ comment on the use of direct debit cards outside Egypt is attributed to the misuse of these cards during the previous period, as restrictions were imposed on their use abroad while withdrawing funds directly from the current account. In this way, there were no effective restrictions, which led individuals who traded currencies to travel outside the country to withdraw money in foreign currencies at the official rate and sell them on the black market, resulting in the country incurring significant financial losses.
Black market for dollars
The official exchange rate remained stable at about 30.90 pounds to the dollar, while the price of the black market dollar rose, with trades ranging from 40 to 41.5 pounds to the dollar. This came after a stormy week that began with the possibility of removing Egypt from the JP Morgan (NYSE:NYSE:) bond index, in addition to Morgan Stanley’s pessimistic report on Egypt, through the statements of the director of the International Monetary Fund, and ending with the downgrading of Egypt’s credit rating by Moody’s.
In general, foreign currencies on the black market decline whenever there is reassuring news about the state of the Egyptian economy, or positive expectations are issued by international institutions and banks about the future of the pound, as supply increases and demand decreases in this case. And vice versa, the price of the dollar and foreign currencies rises and demand increases whenever the news is negative and reassuring about the economy and the future of the pound.
2023-10-10 11:51:00
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