“He told me I can get you any amount you want,” Mr Samy said. “I have not put the dollars in the bank because I am afraid that when I come to withdraw them, they [the bank] will refuse.”
More than eight years after it disappeared in Egypt, the black market in foreign currency has returned, fuelled by shortages in the regulated system of banks and licensed exchange offices.
The dollar crunch is a result of the depletion of Egypt’s foreign currency reserves as the past two years of political turmoil have scared away investors and reduced tourist numbers – both key sources of hard currency. Despite the introduction of administrative controls on foreign currency, reserves dropped from $36bn on the eve of the revolution to $13.6bn at the end of January – below the critical level needed for three months import cover.
The central bank has had to rely on its dwindling holdings to defend the value of the Egyptian pound, fund the exodus of portfolio investors from the local market, and pay for crucial food and fuel imports subsidised by the state.
At the end of December the central bank tried to shore up faltering reserves by allowing a gradual depreciation of the currency through a system of auctions in which it sold dollars to local banks.
The pound has since fallen by almost 9 per cent, hitting a new low of £6.73 to the dollar in Thursday’s central bank auction. On the black market, rates are generally weaker, with some buyers paying a premium of up to 8 per cent above the advertised bank rate, although others say the difference is much smaller.
“There are insufficient dollars being offered through conventional channels,” said an analyst at an international bank, who pointed out that the central bank has held three auctions this week, each offering less than $40m, whereas in the past the daily sums traded on the interbank market ranged from $250m to $300m.
Earlier this month the central bank governor instructed local banks to give priority access to foreign currency to importers of basic foodstuffs, fuel, medicine, fertiliser and industrial inputs. On Wednesday, in a bid to further rationalise foreign currency use, the government increased customs duties on a list of 100 luxury items including watches, boats, sunglasses and shrimps.
“We expect to see more of these restrictive measures as the country’s foreign reserves fall further,” EFG-Hermes, the regional investment bank, said in a note on Thursday.
The authorities and markets had been pinning hope on a $4.8bn loan from the International Monetary Fund that would unblock a wider package of support from donors and restore investor confidence in the country, but the agreement has been postponed.
Sharif Gamrah, a businessman whose company imports pumps and electric motors said he had been forced to resort to the black market to fund his trade and had changed the way he does business.
“Now I change whatever I earn into dollars very quickly, and I don’t give credit to customers because I have no idea how much the pound will be worth by the time they pay,” he said.
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By Heba Saleh – The Financial Times