A shock to the black market in Egypt.. “Goldman Sachs”: The price of the dollar is exaggerated

Although the state of calm and stability dominates The exchange market in EgyptHowever, confusion still prevails in the parallel or black exchange market. As publications on the pages that follow the exchange market in Egypt on social media platforms talk about prices ranging between 32 and 36 pounds per dollar.

However, the American investment bank, Goldman Sachs, 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 is weakening sharply and stands at around 36 pounds to the dollar, about 33 percent higher than the official rate.

He stated that the main factor in that discrepancy is the lack of liquidity in the monetary sector, due to the weak balance of payments, and the exit 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 became greater than the proceeds flowing into the country. .

The report revealed that the current situation is likely to be unsustainable and, in extreme cases, may lead to an increase in the possibility of entering into the risk of a repeated devaluation of the currency, if it is not dealt with. But he ruled that this would happen with the International Monetary Fund program as protection 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 facility agreement, for which Egypt reached an expert-level agreement last October. At the heart of the new programme, he said, was Egypt’s pledge to greater flexibility in the exchange rate, and that pledge could only be fulfilled if the black market for current account operations was at least liquidated.

The report expected that the Egyptian authorities would take a decisive step towards liquidating the black market, in the coming days, a step that carries risks with a significant devaluation of the pound, and the extent of the value of the devaluation will depend on the amount of resources in foreign currency available that the Central Bank wishes to use to increase the supply in the official market, as well as mechanisms The monetary policy that it will take to support the pound in terms of interest, mandatory reserves, and so on.

In the long term, Goldman Sachs expects the Egyptian pound to recover from any devaluation in the near term, if the authorities can commit to a reliable flexible exchange rate and take measures to increase confidence in the exchange system.

The highs won’t last long

Since the beginning of this year, the Egyptian pound has been under severe pressure, especially after the wave of money exodus, which official circles estimated at about $20 billion during the first quarter of this year. Against the backdrop of the crisis, the Central Bank of Egypt announced the devaluation of the Egyptian pound against the dollar twice, the first during an extraordinary meeting in March, and the second in October of this year.

Against the backdrop of these reductions, the dollar exchange rate jumped from 15.74 pounds at the beginning of this year to 24.66 pounds at the present time, registering an increase 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 the value of the financing agreement announced by the Egyptian government at the end of last October, at a value of 9 billion. dollars, including $3 billion from the International Monetary Fund.

And while the Egyptian Minister of Finance, Mohamed Maait, expected that the first tranche that Egypt will receive from the International Monetary Fund before the end of this year, at a value of $ 750 million, it is expected that Egypt will receive one billion dollars from the Sustainability Fund, in contrast to 5 billion from development partners.

penalties for speculators

Regarding the mechanisms of the Central Bank of Egypt to confront the black market, the economic analyst and head of the Cairo Center for Economic and Strategic Studies, Dr. Khaled El-Shafei, said that the Central Bank of Egypt has many mechanisms to stop the speculations that caused the dollar exchange rate to rise to unprecedented levels.

He pointed out that the prices announced on the black market have nothing to do with the fair value of the exchange rate of the dollar, especially since everything that happens is mere speculation by major traders who have turned the dollar into a mere commodity that is being speculated on for quick gains.

And he stressed the need to increase the penalties for anyone who deals in dollars outside the official market, and to control traders and speculators. He said that it is possible for all parties that deal in dollars, such as private universities and travelers abroad, to deal with expenses in Egyptian pounds. He said that the failure to provide dollars in the official market for students and travelers is one of the doors to dealing in the parallel market, and therefore speculations are active on the dollar.

In the official exchange market, the exchange rates of the dollar were stable against the Egyptian pound at the beginning of trading on Wednesday. And in the two largest banks in terms of assets and transactions, the National Bank and Banque Misr, the exchange rate recorded today 24.57 pounds for purchase, and 24.62 for sale. In the Suez Canal Bank, the price of the dollar recorded 24.58 pounds for purchase, and 24.68 pounds for sale.

In private banks, the dollar exchange rate in the Commercial International Bank recorded a level of 24.61 pounds for purchase, and 24.68 pounds for sale, and in the Egyptian Gulf Bank, it recorded 24.65 pounds for purchase, and 24.68 pounds for sale. And at the Central Bank of Egypt, the average prices of the dollar against the Egyptian pound recorded 24.59 pounds for purchase, and 24.67 pounds for sale.

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