Egyptian banks hoarding foreign currency to meet their letter of credit (L/C) obligations appear to be contributing to Egypt's currency crisis, which once more features sharp rises in the US dollar against the Egyptian pound (EGP).

The price of the US dollar for Egyptians rose sharply during February after a period of stability earlier this year.

US dollar prices

By the end of February, one US dollar cost EGP7 on official markets while the price of the greenback reached around EGP7.3 on the black market.

These are the highest US dollar price since the onset of Egypt's currency crisis, which began at the end of last year.

Restrictions

One US dollar cost just EGP 6.1 in November 2012, and since then Egypt's central bank has imposed new currency controls. Travellers cannot leave the country with more than US$10,000 in cash and remittances abroad have become difficult.

Some banks are restricting withdrawals of hard currency while others are keeping hold of US dollars in order to meet L/C obligations, according to an official at the Central Bank of Egypt (CBE).

Civil unrest

President of the International Transactions Chamber for Barclay's Bank, Karam Suleiman, is reported as saying that an increase in the price of the US dollar was inevitable in the light of current levels of violence.

The currency crisis is not expected to ease substantially until Egypt finds more stability, but the country has suffered widespread violence in February during which a state of emergency was declared in at least three of the country's provinces.

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