CAIRO: Egypt’s central bank has begun holding meetings with foreign exchange bureaus to try to keep a lid on black market rates for the dollar, black market traders said, in a move one banker said was doomed to fail.
Egypt, which relies heavily on imports, has been facing a shortage of foreign currency since a 2011 uprising drove away tourists and investors, two major sources of hard currency.
But the central bank has resisted devaluing the pound, keeping it artificially strong at 7.7301 to the dollar. The black market rate has weakened, however, hovering around 8.70 pounds in the last week.
Officially the central bank allows exchange bureaus to sell dollars at up to 15 piasters either side of its set price, but the bureaus have been known to demand more for the greenback when it is in short supply.
The country’s foreign reserves have tumbled to around $16.5 billion from about $36 billion before the 2011 revolt which overthrew Hosni Mubarak. That has put pressure on the exchange rate, which has weakened steadily from about 5.8 pounds per dollar five years ago.
Former central bank governor Hisham Ramez had fought the black market head on, talking publicly about crushing it and shutting down dozens of exchange bureaus selling at unofficial rates.
Tarek Amer, who took over from Ramez in November, is taking a different approach, trying to work with exchange bureaus to control the market, bankers and traders said.
“There was a meeting on Sunday between the central bank and the big exchanges. They agreed to bring the price of the dollar (on the black market) down to around 8.6 pounds,” said a manager at one exchange bureau who was briefed on the meeting. He declined to be named.
“That was the first meeting and there will be other meetings every week with the central bank. The agreement was to bring the price down more.”
Mohamed El-Abyad, head of Egypt’s Foreign Exchange Association, confirmed that a meeting was held in the presence of the central bank’s deputy governor for supervision. But he denied a cap was set at 8.65 to the dollar, as the central bank could not allow a parallel rate outside of the official range.
The central bank does not have an official spokesperson who could comment on the issue.
El-Abyad said the meetings were aimed at keeping rates within the official boundaries.
“We are sitting and explaining to them that they need to comply with the existing financial policies,” Abyad said. “The meeting was urgent because the parallel market started picking up.”
Abyad said the meetings were initiated by the exchange bureaus and may not always involve the central bank.
Bankers and exchange traders said the plan was unlikely to succeed as the black market is guided by supply and demand.
“It is impossible for such an agreement to work… There is more demand than there is supply, so the black market is the one that sets the rules and they cannot be dictated to,” said one banker who follows the black market closely. He also declined to be named due to the sensitivity of the matter.
“How will the central bank impose such an agreement? Shut the exchange bureaus if they don’t comply? The black market does not need the exchange bureaus. They can work from anywhere”.
Black market traders quoted Reuters a range of 8.63 to 8.68 Egyptian pounds to the dollar on Wednesday, slightly stronger than last week. But other traders and bankers said no one would actually sell at such rates.
“Try to actually buy at this rate and they will tell you they don’t have any dollars to offer,” one banker said, adding that the cap may backfire by exacerbating the shortage of foreign currency.