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Dollar madness sweeps Egypt

February 6, 2024 at 2:13 pm

People walk past a currency exchange shop displaying a giant US dollars banknote on November 3, 2016 in Cairo, Egypt [KHALED DESOUKI/AFP via Getty Images]

“What’s the dollar exchange rate?” has become the most asked question on the Egyptian streets. It has been accompanied by dramatic changes in the prices of goods and commodities, scarcity of foreign currency and an insane wave of record high prices. Meanwhile, everyone is in anticipation of the decision to liberate the local currency exchange rate.

The dollar exchange rate was more than 70 pounds in the black market over the past few days, compared to 31 pounds in official banks, with a 130 per cent gap between the two rates. On Sunday, the exchange rate in the black market fell to less than 60 pounds bridging the gap to 100 per cent, but still maintaining confusion and chaos in the market.

Difficult crisis

What is making the situation worse is the scarcity of foreign currency and the government’s inability to provide dollar bills. Other factors include also traders’ tendency to speculate on prices of dollars, gold and properties, some food suppliers’ tendencies to stockpile on basic commodities to make more profits and some people stockpiling on basic commodities for fear of a rise in prices or decrease in supply.

According to a banking source who spoke to Middle East Monitor, the US dollar is being exchanged at more than one price, depending on the amount that is being exchanged. Last week, it reached 74 pounds (about two and a half dollars), which is more than double its value in the official market (30.9 pounds).

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The source added that the rate may drop to below 60 pounds ($2 on the official rate) for a few days or weeks, but it will go up again because of the state of uncertainty and lack of credibility of the country’s economic policies. Other causes would be the delay in receiving the IMF loan and the uncertainty regarding the expected date of floating the pound and forming the new government.

Black market speculation is led by businessmen, importers, traders, workers in the banking sector and exchange companies, in addition to Egyptians abroad, who are looking for the greatest possible gains by avoiding transferring their money through official channels. They’re doing so for fear of bank restrictions and to benefit from the large price difference in the black market.

The Egyptian government itself buys dollars from the markets, especially with the decline in the main sources of foreign currency, such as the Suez Canal, tourism and remittances from Egyptians working abroad. Meanwhile, the government needs to pay off 25 per cent of its foreign debts (about 42 billion dollars out of a total of 165 billion dollars), during this year.

One of those dealing with a government bank told Middle East Monitor that he faced great complications and difficulty when he tried to withdraw an amount of money in dollars, which his brother transferred to him from abroad. Bank officials tried to pressure him to withdraw the money in local currency.

S.A. had a different experience when he tried to deal with an exchange company which is approved by the Central Bank of Egypt. He went to exchange some dollar bills into LE, but he was asked to give all his information including his phone and ID numbers and sign a paper that explains where he got the money from, how much it was and how he got it.

He added: “I got worried and scared as for why they would request all this information even though I did not go to the black market. I asked them why they’re collecting these details, and they told me that it was the Central Bank’s instructions.”

He also told us that, because of this, he would not be going to any bank or exchange company again. Such procedure is frightening and makes people lose their sense of security, and can make investors anxious, fearing the possibility of seizing their dollar savings.

Limits for withdrawals

The crisis became clearer when people found out that there are limits to how much money they can withdraw from banks and ATMs, whether in dollar bills or in LE. This caused a state of fear, not only among investors, but also ordinary people who can no longer withdraw their salaries or parts of their savings all at once, but rather must do that in instalments over several days.

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Egyptian billionaire and businessman, Naguib Sawiris, commented sarcastically on the Central Bank’s new regulations. He posted on his official page on X saying that “the Central Bank refusing to give exceptions to customers, whether individuals or companies, who wish to withdraw more than the daily cash allowance of 150,000 pounds (about 4,850 dollars), would push everyone to keep their money at home.”

During a tour of several ATM machines in central Cairo, we saw that the maximum withdrawal limit at one time went down from 8,000 pounds ($260) to only 4,000 ($130), in ATMs belonging to giant banks, such as the National Bank and Banque Misr (affiliated with the Government), and people cannot make more than one transaction per day.

Banks operating in Egypt had limited the use of ATMs to a range of 50-300 dollars per day when it comes to transactions in foreign currency. This was due to the deficit in foreign assets at the Egyptian banking sector, which reached 27.2 billion dollars by the end of December of last year according to data from the Central Bank of Egypt.

Last month, five Egyptian banks imposed new restrictions on cash withdrawals and spending abroad, including Al Baraka Bank and the Egyptian Gulf Bank. They completely stopped cash withdrawals from abroad, while the International Commercial Bank, Abu Dhabi Islamic Bank and First Abu Dhabi Bank Egypt reduced the daily limit to $50, according to Bloomberg.

Prices climb to record highs

As a result of the dollar madness, record rises in the prices of gold, iron, electrical appliances and other commodities continue. They change every day, or rather, every hour, to the point where sales can be stopped until a phone call is made with authorised agents or suppliers to find out the new price of a commodity.

A sample of prices can help show the extent of the high prices in the Egyptian market, starting from the price of 21 karat gold, the most popular in Egypt, which exceeded 4000 pounds (about 130 dollars) per gram. Then there is iron, at 63,000 pounds (about 2 thousand dollars) per ton. An air conditioner costs LE 35,000 (about $1,132), a refrigerator is LE 30,000 (about $1,000), a washing machine is LE 25,000 (about $800), a kilo of beef is LE 420 ($13.5), a kilo of chicken is LE 110 ($3.5), a kilo of lentils is LE 80 ($2.5), a kilo of beans costs LE 60 (about $2.50) and a litre of milk costs LE 50 ($1.6).

Some store owners temporarily close their stores in anticipation of price increases, or they sell goods at a relative increase as a hedge against any rise in the price of the dollar, while some companies are selling their goods in dollars, which has fuelled the black market.

Muhammad Saeed, an electrical appliances shop owner, says that companies such as Toshiba, Kiriazi, and Fresh stopped sales for 3 weeks and have not supplied any electrical appliances in anticipation of the flotation decision, and until prices stabilise. This increased prices by 25 to 40 per cet on average.

Political and economic reform

While the government media is cheering the imminent resolution of the dollar crisis, economic researcher, Omar Siraj, expects it to persist. He says that Egypt’s crisis is not only economic and will not be solved by flotation, repayment of debts or by obtaining an IMF loan that may reach $10 billion or a package of European financing and Emirati investments. Rather, the crisis is primarily political, due to the expansion of the President’s powers, the army’s monopoly on economic activity, the absence of the role of Parliament, and the suppression of the media. He called for urgent political reform, followed by economic reform that includes raising production rates, reducing import expenses, increasing exports and stopping useless projects.

Successive Egyptian governments have been experimenting with the flotation solution, since the 1960s until the first quarter of 2023, and it has not succeeded in solving the exchange rate problem, according to economist, Mamdouh El-Wali, who believes that the main problem of the Egyptian economy is the fact that there is insufficient dollar resources that cannot cover the need for foreign currencies, which is expressed in Egypt’s merchandise trade balance with the countries of the world. This balance has been in deficit since the 1970s, which necessitates the need to bridge that gap by increasing production in the agricultural and industrial fields, achieving self-sufficiency and then achieving surpluses that can be exported, taking into account that Egyptian industries are more than sixty per cent dependent on imported items.

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The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.