I wonder what is happening in the foreign exchange market? Why has the pound continued to increase in price against the basket of foreign currencies in recent days? Does its rise against the dollar and foreign currencies mean that we have emerged from the crisis? Is the abundance of dollars in banks the reason? Is there something bigger happening? What will we, as Egyptians, feel soon?
In the past few days, there have been important developments in the Egyptian exchange market.. and the pound has risen again against the dollar and the basket of foreign currencies. Of course, this is very positive news for anyone following the economic situation.. but the question we must ask is: Is this a sustainable rise? Or just a temporary improvement?
Let us delve more into the story…and the first thing, let us talk about the reason that may be behind this rise in recent weeks. A number of large Egyptian banks have begun to take external financing in huge amounts, such as the Bank of Egypt, which borrowed a billion dollars from 18 financial institutions, and the Commercial International Bank. Who signed a financing amounting to 150 million dollars. These loans have increased liquidity in dollars in the market, which means that banks are now able to provide more dollars to customers, and the result is less pressure on the pound in front of foreign currencies.
There is also an important point that the international institutions that issue these loans do not agree easily. These approvals mean that there is increasing confidence in the Egyptian economy. I mean, the banks that were stopping international borrowing have now returned, and this is an indication that the picture has begun to improve in front of the world.
There is also a big boom in remittances from Egyptians abroad, and during the first 9 months of 2024 they reached approximately 21 billion dollars, with direct foreign investments reaching about 50 billion dollars. All of this resulted in a great abundance of the currency, which was reflected in the price of the pound against other currencies. The second side
But does this mean that the pound has regained its strength?
This rise may be the result of temporary factors such as an increase in liquidity in the dollar or an improvement in cash flows from certain sectors such as tourism or remittances from Egyptians abroad… but the stability of the pound’s price in the long term depends on greater needs such as increasing production, attracting new investments, and reducing imports that are under pressure. On the currency
At the same time, the Central Bank of Egypt still fixes the interest rate at very high levels on the pound. This encourages people to keep their money in pounds instead of converting it to dollars, and thus reduces the demand for hard currency. However, this step is costly because it makes local borrowing expensive, and this affects the economy in general.
Here comes an important question: Do we really have an abundance of dollars? Or just steps to calm the market?
Some say that the foreign financing that banks have recently obtained may be merely a means to cover a temporary gap in hard currency, not a permanent solution. On the other hand, the decline in global interest rates has made borrowing in dollars cheaper, and this has encouraged banks to resort to international markets.
“Okay, how will we as citizens benefit?
If the pound actually stabilizes or continues to rise, this will affect the prices of goods and services that depend on imports, and prices are supposed to calm down a little with time. Also, the availability of dollars in banks will reduce the gap that makes the black market flourish, but will this happen quickly? The truth is, it is not as fast as we would like. We need to see this improvement continue for a while to judge
