Shock for the black market in Egypt.. Goldman Sachs: The price of the dollar is excessive
Despite the state of calm and stability that dominates the exchange market in Egypt, confusion still prevails in the parallel or black exchange market. Posts by sites that monitor the exchange market in Egypt on social media platforms also talk about prices ranging between 32 and 36 pounds to the dollar.
While the US bank Goldman Sachs has confirmed that the effective real exchange rate model reveals that the price of the dollar against the pound is exaggerated. He added, in a recent report, that the pound is structurally undervalued. Meanwhile, the exchange rate has fallen sharply to around 36 pounds to the dollar, around 33 percent less than the official exchange rate.
The American bank stated that the main factor of this contradiction is the lack of liquidity in the monetary sector, due to the weakness of the balance of payments, and the outflow of capital due to the Russian invasion of Ukraine, which led to the erosion of liquidity in foreign currency. In the banking sector, at the same time, payments in foreign currency have become higher than the income flowing into the country.
The report found that the current situation is likely to be unsustainable and, in extreme cases, may lead to an increase in the possibility of entering into frequent currency devaluation risks, if not addressed. But he ruled that this would happen with the International Monetary Fund program as a hedge against that scenario.
The fund’s executive board is scheduled to meet on Friday to discuss Egypt’s request to complete the 4-year extended credit agreement, for which Egypt reached expert-level agreement last October. At the heart of the new program, he said, was Egypt’s promise of greater exchange rate flexibility, a promise that could only be fulfilled if the black market for current account operations was at least liquidated.
The report expects the Egyptian authorities to take a decisive step to liquidate the black market in the coming days, a risky step with a significant depreciation in the value of the pound, and the extent of the value of the devaluation will depend on the amount of available foreign currency funds that the Central Bank wants to use for increasing supply on the official market. As well as the monetary policy mechanisms they will undertake to support the Egyptian pound in terms of interest rates, reserve requirements and so on.
In the long term, Goldman Sachs expects the Egyptian pound to recover from any devaluation in the short term, if the authorities can stick to a flexible and reliable exchange rate and take measures to increase confidence in the exchange system>
The climbs won’t last long
Since the beginning of this year, the Egyptian pound has been under great pressure, especially after the wave of money exodus, which in official circles during the first quarter of this year is estimated at around 20 billion dollars. Against the backdrop of the crisis, the Central Bank of Egypt announced the devaluation of the Egyptian pound against the dollar twice, the first time at an extraordinary session in March, and the second time in October this year.
Against the background of these reductions, the dollar exchange rate jumped from the level of 15.74 pounds at the beginning of this year to the level of 24.66 pounds at the moment, registering a growth of 56.6%.
In previous statements, Dr. Hani Geneina, an economic analyst and professor at the American University in Cairo, said that these successive increases in the dollar exchange rate will not last long, especially with the arrival of the first tranche of financing value. The deal announced by the Egyptian government late last October is worth $9 billion, including $3 billion from the International Monetary Fund.
And while Egyptian Finance Minister Mohamed Maait expected Egypt to receive the first tranche from the International Monetary Fund before the end of this year, worth $750 million, Egypt is expected to receive $1 billion. From the Sustainability Fund, against 5 billion from development partners.
penalties for speculators
Regarding the Central Bank of Egypt’s mechanisms to counter the black market, economic analyst and head of the Cairo Center for Economic and Strategic Studies, Dr. Khaled El-Shafei, said the Central Bank of Egypt has many mechanisms to stop the speculation that caused the dollar to rise to unprecedented record levels.
He pointed out that the prices published on the black market have nothing to do with the fair value of the dollar exchange rate, especially since everything that is happening is mere speculation by big traders who turned the dollar into a mere commodity for sale. speculated to make quick gains.
He emphasized the need to increase penalties for anyone who trades dollars outside the official market and to control traders and speculators. He said that all parties that do business in dollars, such as private universities and travelers abroad, can handle expenses in Egyptian pounds. He said that the non-supply of dollars in the official market for students and travelers is one of the doors for trading in the parallel market, and therefore speculations about the dollar are active.
On the official foreign exchange market today, Wednesday, at the beginning of trading, the dollar exchange rate was stable against the pound. And in the two largest banks by assets and transactions, National Bank and Banque Misr, the exchange rate today recorded 24.57 pounds for buying and 24.62 pounds for selling, respectively. In the Suez Canal Bank, the price of the dollar recorded 24.58 pounds for buying and 24.68 pounds for selling.
In private banks, the dollar exchange rate in Commercial International Bank recorded a level of 24.61 pounds for buying, or 24.68 pounds for selling, and in the Egyptian Gulf Bank it was 24.65 pounds for buying, or 24.68 pounds for selling. In the Central Bank, the average price of the dollar to the pound for buying is 24.59 pounds, and for selling it is 24.67 pounds.