A painful blow to the dollar in the parallel market. This was the effect of government decisions and recent initiatives on the part of businessmen and businessmen in the private sector, as well as importers who decided not to deal completely with the black market for foreign currencies, most notably the dollar in Egypt.
The American currency incurred very large losses until the price of the dollar on the black market collapsed to levels close to the official rate circulating in the Central Bank of Egypt and banks operating in Egypt, which averages 30.95 pounds, according to the latest updates on the official websites of the banks.
The beginning of the dollar crisis in Egypt
In 2019, Egypt’s currency ranked as one of the best performing currencies in the world, as it gained 13% against the dollar and showed no signs of slowing down during this period and the Egyptian pound rose from 18 pounds to 15.6 Egyptian pounds per 1 US dollar, but within one year the economy slowed The Egyptian pound fell by 50% against the dollar, and the parallel market for the dollar returned strongly.
And before the Russian-Ukrainian war in February 2022, the pound was still strong and while the government cuts spending on gas subsidies, and makes more money through tourism, the Suez Canal, and increased exports, it earns more money, which is put into the central bank account and with the government Building its holdings of foreign currency accounts, which rose from the crisis level of $5-6 billion in 2016 to around $50 billion in 2020, allayed fears that Egypt would not be able to pay its obligations as well as investors gaining confidence that the Egyptian economy is strong and growing. It can be counted on.
Egypt is facing its worst foreign currency shortage in years, with pressure on the pound mounting recently as the country struggles to attract foreign direct investment and outflows into the domestic debt market.
Experts emphasized that the government is not artificially increasing the pound, explaining that if the central bank does not want to increase the pound more than necessary, this will harm exports, expecting the local currency to rise again during the first quarter of 2024, especially after the recent economic decisions of the government. And the business community, in addition to the statements of Dr. Mostafa Madbouly, Prime Minister, that the pound is undervalued against a basket of currencies, most notably the dollar.
The price of the dollar in the parallel market fell by more than 6% against the US dollar during the past week, as traders bet on another devaluation of the currency amid increasing pressure on the local currency.
It is worth noting that the Egyptian pound reached an all-time high of 19 pounds to the dollar in late 2017, as Egypt dealt with an economic crisis and the pound since late 2016 was popular with investors and attracted by returns of nearly 15% on Egyptian bonds and economic reforms until the onset of the crisis. In early 2022.
How did recent decisions strangle the dollar on the black market?
During the recent period, the government issued many economic decisions that led to the freezing of activity in the black market and the weakening of the dollar in the parallel market. The business community in Egypt also launched many initiatives aimed at not dealing with the black market in order to support the Egyptian economy and the local currency.
Adjust the local gold market
With the depreciation of the Egyptian pound against the US dollar, thousands of citizens resorted to buying gold to preserve the value of their savings in the local currency, which led to a rise in the prices of the yellow metal. With lower labor costs, up more than 50 percent compared to the beginning of the year.
A report issued by the World Gold Council last week revealed that the demand for gold in Egypt doubled, reaching seven tons in the first quarter of 2023. During this time, Egypt ranked fifth in the world in high demand for gold bars and coins.
The increased demand caused a shortage of supply. Meanwhile, government officials repeatedly called on citizens to stop buying gold until the market stabilized. Recently, the gold market witnessed a decline after the government agreed to exempt Egyptian travelers from customs duties upon their arrival in Egypt if they were carrying gold for personal use. It asked them to pay for value-added services only after presenting the purchase receipts.
This call came at the right time to create a state of balance and control over the market, as well as calm down the dollar trade in the black market, which was clamored by many to import gold ore from abroad to cover the local demand, as in some countries, such as Saudi Arabia, gold is cheaper than Egypt, which made the Egyptians expatriate. They put their savings into gold instead of transferring money to the country’s banks.
Launching the gold fund to invest in the yellow metal
Although the gold investment fund will operate under the supervision of the Financial Supervisory Authority, it will be managed by Azimut Egypt Asset Management and Evolve Investments. The fund, which will operate with a minimum of 5 million Egyptian pounds, will buy and sell gold through entities registered with the authority and will provide subsidized investment certificates. In gold, it starts from 10 pounds, with a minimum certificate of 1000 Egyptian pounds.
And the fund will work with commodity traders from the private sector, as well as the bodies that store and preserve gold, and all private companies it deals with must be at least two years old, and they must be listed on the Egyptian stock and commodity exchanges.
The fund will work to enhance financial and investment inclusion by diversifying the investment options open to Egyptians, and the framework for launching the fund will be used to start more precious metal funds in the future that are compatible with the different investment habits of societal segments.
The fund reflects the government’s efforts to ease pressure on the gold market, provide various types of investment and increase the supply of gold in the local market in an attempt to reduce prices, which have witnessed a sharp rise since March of last year.
And the increase in gold prices was caused by a shortage of US dollars in the Egyptian market, which seriously limited the country’s ability to import components needed for basic industries. The World Gold Council, as Egyptians sought a safe haven for their dwindling life savings held locally, and the depreciation of the Egyptian pound led many to hoard gold rather than sell it, further reducing supplies in the market and raising prices.
The launch of the fund at the same time that the gold sale is expected indicates that the government hopes to convert citizens’ gold holdings into cash investments in the fund.
Non-deliverable futures market
In the non-deliverable futures market, the one-month contract on the pound is down 3.5% since the end of February to 32.4 per dollar, while the 12-month contract is at 37.6.
To boost its financial resources, Egypt secured a $3 billion agreement with the International Monetary Fund in addition to $13 billion in deposits from the Gulf. The International Monetary Fund estimates Egypt’s external financing gap at $17 billion over the next few years, and expects its program to help open About $14 billion more from international and regional partners.
Expectations of floating the pound decreased
A recent report by Citigroup confirmed the decline in expectations of devaluation of the Egyptian pound, as the Central Bank of Egypt will not take this step at least until the end of next June.
The report said that the floating of the pound hinders the government’s goal of a budget deficit of 6.5% and the stability of the country’s debt relative to the gross domestic product, and that the Central Bank of Egypt is waiting for revenues from tourism of about $14 billion.
Private sector initiatives not to deal with the parallel market
Many businessmen and importers have launched initiatives with the aim of not dealing with the black market in order to calm the markets and support the Egyptian economy, which works to support the value of the local currency. The field for the private sector to be the locomotive of growth for the economic sector in the coming years.
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