China and Egypt sign currency swop deal

CHINA and Egypt yesterday concluded an 18 billion yuan (R36bn) three-year bilateral currency swop, a move that importers and economists said would facilitate trade and improve foreign currency liquidity in cash-strapped Egypt.

Egypt’s central bank said the arrangement could be extended by mutual consent. “This bilateral currency swop is a mutually beneficial arrangement,” it said.

The People’s Bank of China said the move was aimed at promoting trade and investment and maintaining financial stability in both countries.

China has carried out swops with more than 30 central banks globally to increase the use of the yuan as a global reserve currency and to stimulate bilateral trade.

Neither bank gave details on how the Egyptian currency swop would work, but economists and business people expect it to have a positive impact on Egypt’s foreign reserve.

“The position of the central bank is definitely increasing, with more firepower denominated in foreign currency to stabilise the Egyptian pound when needed,” said Hany Farahat, a senior economist at Cairo-based CI Capital.

“So this is definitely something positive,” he added.

Egypt has struggled to revive its economy since a popular uprising in 2011 drove away tourists and foreign investors, major sources of foreign currency. Reserves tumbled from $36bn (R491bn) in 2011 to about $16.56bn at the end of August.

Egyptian importers said the deal with China would allow them to source yuan directly, facilitating imports from China while reducing demand for dollars and easing pressure on the Egyptian pound.