In the latest move in a campaign to stamp out Egypt’s currency black market, the Central Bank of Egypt on Sunday revoked the license of one exchange bureau and suspended six others.
The Brent exchange company’s license was revoked for repeatedly defying currency regulations and “harming the currency market and affecting the country’s economic stability,” according to a statement distributed by the state-owned Middle East News Agency.
Four other companies had their licenses suspended for one year, and two companies for six months.
Sunday’s closures are the latest in a series of raids and closures of exchange companies believed to be involved in Egypt’s vast currency black market. According to local reports, at least 23 exchange companies had been shuttered as of the end of July, with additional companies facing other sanctions.
These enforcement efforts make it more difficult for people seeking to make small currency transactions, but some argue they will have little impact on the broader parallel market.
“I don’t think it has much of an effect. A lot of currency brokers still operate, they just don’t do it at the shop,” says a source familiar with the industry, speaking on condition of anonymity. Closing down storefronts could even backfire, he says. “Some brokers will use it as an excuse to hoard dollars and inflate the price.”
Egypt is in the grip of a currency crisis, driven largely by a trade deficit that reached almost US$30 billion in the first nine months of the 2015/16 fiscal year. Last month, Central Bank of Egypt Governor Tarek Amer said it had been a “grave mistake” to burn through billions of dollars in foreign aid in order to bolster the pound, but that it has nonetheless held the official exchange rate steady at LE8.78 per dollar since March, with banks and exchange bureaus legally permitted to sell dollars for LE8.88. On the black market, the US dollar peaked at around LE13 last month, and is currently trading at around LE12.50.
The CBE supplies dollars at the official rate via regular foreign currency sales, typically offering $120 million per week, which banks can then resell to their customers. With demand far outstripping supply, businesses complain they are unable to finance imports of goods and equipment, while Egyptians traveling or living abroad find themselves unable to change pounds into hard currency or receive funds from their Egyptian bank accounts.
This gap between supply and demand has created room for a thriving black market. Meanwhile, tight restrictions on foreign currency have forced brokers to become more sophisticated.
Brokers now serve as middlemen between Egyptians working abroad and corporate clients in Egypt, the source says. These brokers buy hard currency from Egyptian expatriates, and arrange for pounds to be delivered to workers’ families in Egypt — at a more favorable exchange rate than the banks offer. Brokers then allocate these dollars to corporate clients in Egypt who need them to finance imports.
Under this system, hard currency can go from expatriate workers to brokers to Egyptian companies to foreign suppliers without ever passing through Egyptian banks — or in some cases, without entering Egypt at all.
The government and Central Bank have tried out numerous policies to crush the black market, from dollar deposit limits to raids on currency exchanges. In June, the Cabinet approved amendments to banking regulations that would allow some violations of currency regulations to be punishable with prison sentences ranging from six months to three years.
None of this seems to have stopped the black market. “At the end of the day, the most effective way is to float the currency,” the source says. “When you allow banks to compete at the market rate, dollars are going to flow into the system.”