(29 Feb 2016) LEAD IN:
The Egyptian government has launched a new dollar certificate to encourage Egyptian expatriates to move their foreign currencies into the country's economy.
It's an attempt to boost Egypt's dwindling foreign currency reserves which have led to record lows in black market rates for the pound.
STORY-LINE:
Egypt's currency is floundering.
The pound has dropped to record lows on the black market in the last week, hovering between 9 and 9.25 per dollar.
The problem is linked to the import market with companies relying on dollars to bring goods into the country.
But foreign currency reserves have fallen drastically and businesses are struggling to find the dollars to import items.
The reserves have remained at 16.5 billion dollars in recent months, having declined from 36 billion in December 2010, a month before the 2011 uprising that toppled long time autocrat Hosni Mubarak.
But the government has a plan to boost that number.
It has launched 'Belady' dollar certificates to encourage Egyptian expatriates to move their currency savings into the country's economy.
"We announce the issue of the Egyptian dollar certificate 'Belady' for Egyptian expats through the branches of those three national banks (National Bank of Egypt, Banque du Caire, Banque Misr). Those banks are issuing such certificates in response to demands from the Egyptian expatriates to direct their savings into foreign currency to serve their country's economy," says Nabila Makram, Minister of Immigration and Egyptian Expatriate Affairs.
The certificates offer interest rates of 3.5, 4.5 or 5.5 percent, depending on the maturity term.
Egypt faces an uphill struggle to meet its dollar needs.
"The worst thing is the balance of payment in Egypt's economy. What Egypt needs to pay to the outside world in hard currency, in the form of importing goods and services, and other commitments, like paying Egypt's debts, is much bigger than Egypt's income from foreign currencies from revenues of Suez Canal, tourism, remittances from Egyptians abroad and revenues from foreign investments in Egypt," says Magdy Sobhy, Deputy Director of Al-Ahram Center for Political and Strategic Studies.
"So this critical situation will result in a drop in Egypt's exchange reserve from foreign currency and obviously will affect the value of the Egyptian currency."
Egypt can no longer really on tourism to prop up its currency revenues.
It has has declined sharply since unrest stemming from the 2011 toppling of Mubarak.
The apparent bombing of a Russian passenger plane over the Sinai peninsula last year, claimed by the IS group, led to widespread flight cancellations, dealing a major blow to the industry, which is one of the country's main earners.
Pressure is mounting on the central bank to devalue the pound.
Central bank Governor Tarek Amer has said the bank would only consider floating the pound once the country shores up its foreign currency reserves to 25 billion US dollars or 30 billion US dollars.
"A floating exchange rate is to allow the market mechanisms to determine the currency value against the foreign exchange market and what we see now of the pound value in the black market is considered floating the pound," says Sobhy.
Egypt's official exchange rate remains at 7.83 at banks since the central bank strengthened the pound by 0.20 pounds in November, a move that came as a surprise to investors.
A devaluation would cause a surge in prices for Egyptians who are needing imported goods.
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