For the first time since 2003, the dollar rose above LE7 in official banking transactions starting last week Wednesday, selling currently at LE7.006, up from approximately LE6.9. According to Belal Khalil, deputy head of the Exchange Division at the Federation of Chambers of Commerce, the American currency is currently available in the black market for nearly LE7.45. This comes amid a critical foreign reserves volume of $14.4 billion which was propped up by the recent addition of a $1 billion deposit from Libya. “Egypt's current reserves of foreign currencies make it difficult for the Central Bank of Egypt [CBE] to intervene and support the pound against the dollar,” said Salama Al-Khouli, a financial expert at the National Bank of Egypt. However, Al-Khouli added, the increase is meagre if compared to the value of the pound to the dollar last week and should not be a reason to worry. The Egyptian currency has been depreciating steadily since December 2012 following a new dollar auction system introduced by CBE to protect foreign reserves from a rapid decrease. According to the system, foreign currency auctions are held regularly to sell to banks based on their needs which are reflected by the market's needs. Al-Khouli also stated that the government is using current reserves of foreign currencies to import necessities such as basic food staples and petroleum products. He stressed that several factors contributed to the depreciation of the pound, including the unstable political and security situation, Egypt's continuous credit rating downgrades, the country's budget deficit, and a slowdown in foreign investments. Another expert agreed that Egypt's lack of normal foreign currency flow is affecting the value of the pound against the dollar. “I believe that the value of the pound to the greenback will continue to swing unpredictably because tourism and exports — two of Egypt's main foreign currency earners — are not performing as they should amid ongoing local demand on currencies,” said Ahmed Kora, former head of Al-Watany Bank of Egypt, adding that the value of the US dollar against the Egyptian pound is likely to continue increasing in the near future, especially since there is a deficit in Egypt's balance of payments and local production rates are low. Although the dollar auction system adopted by CBE is blamed as one of the reasons that led to the depreciation of the pound during the last few months, Khalil pointed out that it helped curb the black market. “The difference between the official prices of the dollar and its cost on the black market has become small and is a sign that the black market is diminishing.” The currency exchange market, according to Mohamed Al-Bagi, manager of the Middle East Exchange Company, has been affected by renewed street protests and the kidnapping of seven Egyptian soldiers in Sinai, thus leading to more demand on the dollar and contributing to its price increase. Both Khalil and Al-Khouli agreed that it is hard to predict if the pound will continue depreciating against the dollar in the near future, but said the demand on the dollar will increase significantly during the next few weeks as a result of the expected high demand by companies and organisations that will have to cover their short-term obligations before the end of the fiscal year on 30 June. The $4.8 billion loan that Egypt is set to receive from the International Monetary Fund in a few weeks, according to government officials, might help stabilise the status of the pound. Additionally, Egypt's minister of planning and international cooperation, Amr Darrag, was quoted by the daily Al-Watan as saying that Egypt's government seeks to increase its foreign currency reserves to $18 billion before the end of the current fiscal year. To do so, Darrag added, the government is trying to boost export volumes and foreign investments, as well as gradually decreasing state spending on subsidies without affecting the poor.
