Efforts continued this week to cap black-market trading of hard currency, with the Central Bank of Egypt (CBE) imposing a ceiling on dollar deposits. The move is aimed at discouraging people from buying dollars on the black market and then depositing them in bank accounts.
Following this weekfs move, the banks will not accept more than $10,000 per day or $50,000 per month in deposits.
The CBE decision is the latest in a series of measures begun last month that have included auctioning dollars at a higher rate for three consecutive weeks and thus allowing the pound to depreciate to LE7.63 against the dollar from LE7.15 three weeks ago.
gThe exchange market will settle down in less than two weeks as a result of the CBEfs decisions,h Belal Khalil, deputy head of the foreign exchange division at the Federation of Egyptian Chambers of Commerce, told the Weekly.
The unofficial currency market witnessed record low rates for the pound against the dollar last week, when one dollar was being traded at around LE8.
However, as a result of the CBEfs measures, especially the cap on dollar deposits, the official exchange rate at the banks has been the same as that on the black market for the first time in the past couple of years.
The CBEfs decisions have hit the black market hard, says Ezzat Abu Zeid, executive director of Brent Exchange. He explained that currency speculators and unofficial traders are trying to sell the large quantities of dollars they had purchased at high prices over the last couple of weeks, but now cannot find buyers as a result of the current regulations.
"I think the black market is on its way to vanishing," he said.
However, some experts criticised the decision to limit dollar deposits for companies, believing it would negatively affect new investments as well as Egyptfs foreign exchange reserves.
Alia Al-Mahdy, a professor of economics at Cairo University, said a cap on dollar deposits was gnot a wise thing to doh while the countryfs reserves are at a critical level.
According to the CBE, the countryfs foreign currency reserves, fluctuating since the 25 January Revolution, currently stand at $15.429 billion.
Al-Mahdy believes that expected deposits from the Gulf states ahead of the Egypt Economic Development Conference (EEDC) next month are likely to further stabilise the currency, but only temporarily because deposits are a debt that will eventually have to be repaid.
Saudi Arabia, Kuwait and the United Arab Emirates have said they will deposit $10 billion in the CBE before the EEDC.
Al-Mahdy also predicts that the CBE will allow further depreciation of the pound against the dollar in the near future in order to eradicate the black market before the EEDC. However, she stresses that this can only happen if the banks meet the demand for dollars.
The CBE sold $38.4 million to the banks in the latest auction on Monday.
Khalil also believes that the banks must cover importersf demand for dollars. gThe importers of basic goods should be prioritised by the banks when it comes to providing dollars,h he stresses, adding that importing non-essential goods is a luxury that the countryfs economy cannot afford.
The CBE move to allow the pound to depreciate and eradicate the black market is aimed at creating a favourable investment environment ahead of the EEDC, scheduled for next month, as investors do not favour a market where there is a noticeable gap in the black market and official rates.