CBE signs 18bn yuan bilateral currency swap agreement with Chinese central bank

The agreement will lead to a decline in demand on the dollar and an improvement in the balance of payments, says Youssef

The Central Bank of Egypt (CBE) signed a bilateral currency swap agreement with the People's Bank of China (China's central bank) at a value of 18bn yuan or $2.6bn.
The CBE stated in a press release that this agreement is valid for three years and can be extended. It achieves mutual benefit for both parties and asserts the strong relationship between the two countries, as well as showing China's support to Egypt's economic reform programme.
"This agreement demonstrates the strong international support that the Arab Republic of Egypt has garnered with respect to its homegrown reform programme. Additionally, it complements a series of measures taken which aim to unleash the vast potential of Egypt's economy," the statement read.
Head of the treasury at a foreign bank operating in the Egyptian market, Tamer Youssef, said this agreement will lead to a reduction in the demand on US dollars for executing import operations from China, in addition to an improvement in the balance of payments.
Youssef said that in accordance with the agreement—and according to the available information—China will create an account at any one of the Egyptian banks and will deposit the value of the agreement in Chinese yuan into that account. This can then be withdrawn from that account to execute any import deals from China.
In return, Egypt will deposit Egyptian pounds—at the equivalent value of the withdrawn yuans—in the account China will create. These pounds will be invested for China in the government debt instruments or any other form of investments in Egyptian pound, and China will gain the value of the returns on these. At the end of the agreement period, Egypt will buy yuans from the international market to give back to China.
That agreement cannot be enacted outside of the measures that the CBE took earlier, such as the controls of regulating imports including bank to bank documents, or decreasing the debit burden ratio for retail customers, or floating the pound, or the government's decisions with regard to imports and increasing customs, according to Youssef.
Together, these moves will decrease imports, and consequently the demand on the foreign currencies, which would decrease the deficit in the balance of payments, he said.
The current challenge remains the preparation of the legislative and administrative climate for the direct foreign investments that will start coming to Egypt, coinciding with the expansionary policy after the first quarter of 2017 and the end of the inflation wave, said Youssef.
The size of economic cooperation between Egypt and China reached $19bn in the last year, minister counsellor for commercial affairs at the Chinese Embassy in Cairo, Han Bing, said during the opening of the Egyptian-Chinese business forum a few days ago. Bing added that the size of trade between both countries reached $7bn in the last year.
China exports many products to Egypt, such as cars, textiles, and steel products, while it imports petroleum substances, raw materials, and agriculture products from Egypt.
Figures issued by the CBE on Wednesday showed that the size of the trade exchange between Egypt and China reached $5.19bn by the end of the fiscal year of 2015/2016.
The CBE said that the total imports from China reached $4.73bn this year, while the size of Egyptian exports to China reached $462.7m.
Analysts are estimating the size of the Egyptian imports from China at about $10bn, including the smuggled imports.
A number of years ago, the CBE added the Chinese yuan to the list of the locally-traded currencies.
The yuan's price now is about EGP 2.56 for buying and EGP 2.62 for selling.