The Egyptian pound has lost much of its value versus the US dollar, falling to a three-year low in August.Although the greenback is losing its decadeslong glamour, it has been gaining ground in the local market. Analysts say it is a matter of supply and demand. It's even a matter of culture, an analyst said. "Egyptian investors follow an outdated business custom, which considers the dollar a holy thing. This culture should be changed," Hany Riyad, an analyst at Cairobased Financial and Legal Consultants Centre, told the Egyptian Mail in an interview. The dollar rose to LE5.72 versus the Egyptian pound in the local market despite falling against safehaven currencies like the yen and Swiss franc globally. The yen hit a 15-year high against the dollar last month. The dollar slumped to 83.72 yen, the weakest level since June 1995. "A foreign exchange market is all about supply and demand, like any other market. The US dollar has been on the rise since May. Spiralling imports in the summer and the Muslim fasting month of Ramadan may be one of the reasons," Riyad explained. Egypt, the most populous Arab country of 80 million, imports agrofood commodities worth $8 billion annually, according to the Ministry of Trade and Industry. Wheat tops Egypt's imports, with an average seven million tonnes annually to meet growing demand, according to official data. Wheat prices have shot up since Russia banned grain exports from August 15 until the winter season in 2011. Wheat prices have jumped by nearly 50 per cent since then. "A decline in Egypt's hard currency earnings lifted the dollar to LE5.65 in 2009. On the contrary, earnings rose this year as many countries have pulled out of recession worldwide," Riyad said. "Tourism, remittances from Egyptian expatriates, and receipts from the Suez Canal have rebounded. The rising bill of imports, particularly wheat, is mainly the reason," he said. The country's balance of payments posted a surplus of $3.1 billion in the first nine months of the fiscal year 2009/2010, against an overall deficit of $2.3 billion in the previous corresponding period, the Central Bank of Egypt (CBE) said in a statement on its website. "The improvement reflects a 24 per cent contraction in the current account deficit to stand at $2.6 billion, against $3.4 billion a year earlier," the CBE said. Net foreign reserves at the CBE totalled $35.27 billion at the end of July, according to the CBE. Remittances from Egyptian expatriates surged to $9.5 billion in FY 2009/2010. "Many local investors deem the dollar as a store of value, boosting what is called ‘dollarisation'. This explains why the greenback is falling worldwide and gaining ground here," he explained. On August 30, the Bank of Japan (BoJ) eased its monetary policy to provide cheap fixed rate loans to the banking system and combat the rising of its currency. The BoJ expanded its fund supply tool, increasing the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion yen ($351 billion) from 20 trillion yen. The yen fell versus the dollar on the back of this measure. In their book International Economics, US professors Charles P. Kindleberger and Peter H. Lindert say: "The government of Japan has tried repeatedly to hold down the dollar value of the yen, apparently in order to give Japanese sellers of traded goods an extra competitive edge in international markets. "The Japanese determination to resist the rise of the yen is a leading example of what has been called the "dirty float", a floating exchange rate involving considerable official intervention in one direction," they wrote. Will the CBE take a similar measure to curb the dollar rise? "In Japan, they want a weaker yen to boost exports. It's up to the CBE to pump dollar liquidity into the market to push supply up. But this a temporary measure and not solution," he said, arguing that there could be "a silver lining in the cloud". "A rising dollar would give Egyptian exports a competitive advantage in global markets. However, it would increase the cost of imports, adding pressures on the Egyptian pound and pushing inflation rates up," he argued. Inflation in Egypt rose to 10.9 per cent in August, from 10.7 per cent a month earlier, according to the Central Agency fort Public Mobilisation and Statistics (CAPMAS) . Annual inflation stood at 21.1 and 16.2 per cent in 2008 and 2009 respectively, according to CAPMAS. Inflation reached a record high of 23.6 per cent peak in August 2008. "The dollar has already lost much of its glamour globally. It will lose much more in the future. But until now it's still the king here," he added.
