Egyptian officials say banks operating in Egypt provided US$2.2 billion to meet the needs of their customers and secure letters of credit (L/Cs) in the ten days since the liberalisation of the exchange rate of the Egyptian pound.

The Central Bank of Egypt (CBE) has been struggling for over a year to make available foreign currency and L/Cs, the shortage of which has caused problems in many sectors, from manufacturers to motor dealers, (DC World News, 13 November 2015 and 3 February 2016).

Liquidity boost

The CBE floated the Egyptian pound on 3 November 2016, an exercise that resulted in the injection of US$2.2 billion of liquidity in the foreign exchange market in just ten days.

On the day the pound was liberated, the exchange rate soared to 13 Egyptian pounds (E£13) to the US dollar whereas it had previously been fixed at £8.8 to the US dollar.

Stabilisation

At the same time as it liberated the currency, the CBE increased interest rates by 3 per cent with the aim of stabilising negative impacts of the floating exchange rate.

Reports in the Egyptian media suggested that some banks were refusing to sell foreign exchange to their customers due to its scarcity, which is why the CBE explained in a press statement that the banks had provided the US$2.2 billion specifically "to cover customers' needs and provide documentary credits [for] foreign trade transactions."

IMF deal

Floating the currency was a key precondition of a US$12 billion International Monetary Fund (IMF) loan for Egypt aimed at helping the country build foreign currency reserves, attract foreign investment and provide sufficient liquidity for the importation of essential items, including food and fuel.

Egypt has now received the first tranche of the IMF loan worth $2.75 billion.

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