Main menu

Pages

The rise in the price of the dollar on the black market

 


The American University in Cairo The US dollar against the Egyptian pound: an increase in the exchange rate on the black market

The US dollar against the Egyptian pound: an increase in the exchange rate on the black market

The value of the Egyptian pound fell to its lowest rate against the US dollar on the black market this month, against the rise of the US dollar to 9.60 Egyptian pounds. The rise in the value of the dollar comes as a result of the attempts made by the Central Bank of Egypt to control and regulate the price of the pound at 7.83 in order to avoid major fluctuations in the value of the currency. The decision, which was issued by the bank to maintain the stability of the dollar, required imposing some restrictions on the movement of hard currency, which led to the inability of businesses to convert currency in banks.


Alia Bassiouni, instructor and co-chair of the Department of Management at the American University in Cairo, and Tarek Selim, professor and chair of the Department of Economics, talk about the reasons behind the recent appreciation of the dollar.


How did the bank manage to keep the dollar stable at 7.83 pounds despite its value increasing to 9.06 pounds on the black market?


Bassiouni: The banks, operating under the CBE banner, provide dollars to businesses to import basic commodities (wheat, corn, flour), energy, and medicine. Therefore, banks accept bids on the dollar from parties that need to import these goods, so that the dollar supply is equal to their demand for it, and therefore its price can be maintained at 7.83 pounds in the bidding.


However, this creates a problem for businesses that need to import non-essential goods. For example, if that business wanted to import a luxury hair shampoo at $15 per package, they would have to transfer $150,000 to import it, which means these importers would need EGP 1,440,000 at the exchange rate of EGP 9.60. As well as converting currencies, importers also need to deposit money into their dollar accounts. As a result of the Governor of the Central Bank of Egypt raising the ceiling or maximum monthly dollar deposits to $250,000 without a maximum per day, importers will be able to deposit and transfer immediately. For this particular reason, the black market has experienced a boom, whereby importers are able to exchange and transfer foreign currency without the strict restrictions imposed by banks.


Do you think that the rise in the value of the dollar on the black market came as a surprise?


Bassiouni: No, it is not surprising because this rise is related to the demand for liquidity. If anyone wanted to get dollar coins, banks wouldn't be the best choice for that to happen. Both Egyptians and foreigners will need to turn to the black market for such hard currency, as everyone is now vying for the available dollars that are provided by people remitting remittances from abroad or small exporters who own dollars and can transfer them at prices higher than the rate offered by the system. banking.


Why is the black market not abolished?


Bassiouni: It is very difficult to control and regulate the black market, but its activity was limited last year when the Central Bank of Egypt imposed a cap on deposits. However, the bank raised the maximum monthly deposit limit last February, allowing people to get black market dollars, which they deposit in their dollar accounts in order to return them to the official banking system again. This is one of the reasons for the increase in black market activity. It happened again in Egypt, and is happening now in Venezuela.


How does the black market determine when the value of the dollar will be raised?


Bassiouni: The value of the dollar against the pound on the black market is determined by unregulated supply and demand, unlike the official rate that is set by the Central Bank of Egypt. Thus, when the demand for the dollar increases, its price increases as a result of everyone competing for the limited amount of the supply of it. Accordingly, businesses that need cash to import their products may want to pay a very high price in order to get the amount of dollars available on the black market.


Do we expect a rise in the dollar price in banks soon?


Selim: Tarek Amer, governor of the Central Bank of Egypt and a university graduate in 1981, announced that the pound would be floated only if the bank's foreign exchange reserves rose to $25 billion, from $16 billion at the moment. The reserve available in the bank is an important indicator as it informs us of the value that the Central Bank of Egypt is able to offer in the banks.


How long can the devaluation of the pound last? What do we expect in the coming months?


Salim: The economy always moves in cycles and we are full of hope that the political situation in the country will stabilize soon. Over the coming months, we expect tourism to pick up during the summer which may correct some of the imbalance between supply and demand. In addition, it is expected that the new revenues of the Suez Canal will increase significantly over the previous months, which may contribute to partially correcting the imbalance.

reactions

Comments