Sunday, February 10, 2013

With currency controls in place, black market for dollars develops in Egypt

The Egyptian pound continues to weaken, as the central bank attempts to stem the run on the currency by imposing among other measures a tight trading range. Anecdotal evidence suggests that a number of wealthy individuals and businesses are quietly converting savings into hard currency and to the extent possible depositing funds abroad. Some are buying gold as inflation accelerates (see BW story).


Any time currency controls are imposed, a black market usually develops. And Egypt is no exception.
Fox Business: - A run on Egypt's pound has left foreign currency in short supply and driven some dealers into the streets in search of people with U.S. dollars to sell, spawning a new black market.
"There are no dollars. Everyone that walks in asks for dollars but supply is scarce," said one of the dealers.

The central bank took steps last week to manage the rate including narrowing the pound's trading band. It was last bid at 6.71 [actually it's 6.73 now] to the dollar on Sunday in interbank trade.
The pound's decline has been reflected in a drop in Egypt's foreign reserves, which fell to $13.6 billion at the end of January - below the $15 billion level needed to cover three months' imports. The reserves stood at $36 billion on the eve of the uprising against Mubarak.

Complicating a business climate already weighed down by political unrest, some importers say they are having to source their foreign exchange needs from what they call the parallel or open market.

One senior executive at an Egyptian company that imports goods from abroad said companies were able to source their dollar needs from the black market, but forecast that supply would tighten further in the coming weeks.
Egypt desperately needs the IMF loan that was arranged last year but is yet to be disbursed. However the IMF wants to make sure that political stability is reached and the government implements the measures it had promised, such as certain tax increases. In the mean time - in a classic "chicken-or-the-egg" situation - foreign reserves continue to dwindle.
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