US dollar hits highest exchange rate in Egypt as government urged to control black markets
▶ Gold rates also rose as Egyptians aimed to preserve the dwindling value of their savings
Egypt’s black market exchange rate for the US dollar reached a record high of 53 Egyptian pounds amid calls for the country to devalue its currency.
The latest rise in the black market price of the dollar is caused by a worsening foreign exchange shortage that has hit Egypt, a net importer, since the start of the Russia-Ukraine, an unofficial currency trader told
The National.
That has led to the departure of foreign investors.
Increased demand for the US currency in late November resulted in a drop of dollars on the market, he said.
“At the end of last month, there was a noticeable rise in demand. Many more people than earlier this year went out searching for US dollars and in large amounts. My read is that everyone is doing this in anticipation of a devaluation by the government which we were all expecting to happen soon after the elections, as a means of preserving the value of their savings,” said the trader.
Egyptian banks, all of which have recently tightened depositors’ access to US dollars through debit and credit cards, are still operating at the official exchange rate of 30.9 Egyptian pounds to the US dollar.
However, analysts said that the Egyptian pound is overvalued, which has prompted those holding dollars to sell on the black market.
Government policy has also contributed to the rise in demand for dollars, according to an economic analyst at Cairo University. The government’s mounting foreign debt has increased demand for dollars because the associated debt service fees are also paid back in US dollars. “The more the government borrows, the worse the country’s trade deficit becomes, which in turn increases demand for US dollars needed to service debts, and the rise in demand will continue to push the value of the dollar up against the pound,” he said.
Egypt’s industries rely heavily on imports to function. The dollar crunch and related import restrictions have affected many industries and pushed the prices of goods and services to unprecedented highs.
“In a perfect world, the government would make enough dollars available to citizens who need them for imports and sell it to them at the official exchange rate of 31 Egyptian pounds,” the analyst said.
“But what we’re looking at is that the government is simply unable to do this. There aren’t enough dollars available through official channels. The government itself is one of the biggest black market clients for US dollars in Egypt.”
Some of Egypt’s senior business leaders have called on the government to freely float the currency to restore trust to the country’s formal markets and remove dollar black markets
This is also a demand from the International Monetary Fund, which Egypt turned to last year for another round of financing worth $3 billion. “The existence of two exchange rates in Egypt is a real crisis. We don’t learn from history. The real problem is the scarcity of the US dollar, and we are fooling ourselves if we don’t free the exchange rate,” said billionaire businessman Naguib Sawiris on the sidelines of an economic conference on December 20.
While some Egyptians chose to preserve the value of their savings by purchasing dollars, many more have purchased gold as an alternative. Consequently, bullion rates in Egypt hit their highest rate yesterday, when a gram of 21-carat gold was selling for 3,300 Egyptian pounds, up from 2,800 in late November.
Egypt’s government has devalued its currency three times since March last year.
Egypt has about $165 billion in foreign debt and an annual import bill of $90 billion. It has recorded a drop of more than 50 per cent in the value of its currency since March last year while inflation has climbed close to 40 per cent.
Analysts said that the Egyptian pound is overvalued, which has prompted dollar holders to sell on black market