Authorities in Egypt recently allowed the local currency’s exchange rate versus the U.S. dollar to decrease by more than 60%. Additionally, the central bank raised interest rates by 600 basis points. Both steps were key conditions set by the IMF which Egypt had to meet before the approval of a new financial aid package. IMF […]
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Egypt Aims to Ease Pressure on Forex Reserves via $1 Billion Treasury Bill Auction
Barely a month after raising 0 million from an auction of dollar-denominated treasury bills, the CBE was reportedly poised to raise billion via similar instruments. The decision to hike overnight interest is said to be part of the central bank’s ongoing efforts to stabilize Egypt’s teetering economy.
Easing Pressure on the Egyptian Pound
On Feb. 5, the Central Bank of Egypt (CBE) was poised to auction dollar-denominated treasury bills (TB) worth billion. This move is said to be part of the CBE’s ongoing efforts to stabilize Egypt’s teetering economy. The TB auction reportedly aims to alleviate the pressure on the country’s foreign exchange reserves.
Before this latest auction, the CBE had already sold more one-year TBs worth 0 million in December 2023. Despite these measures, the Egyptian pound continues to face challenges.
Just days before the TB auction, the CBE raised overnight interest rates by 200 basis points. As a result, the lending rate surged to 22.25%, while the deposit rate reached 21.25%. Interest rates were hiked to curb inflation and stabilize the economy. The decline in Egypt’s headline inflation rate to 33.7% indicates some success in the CBE’s efforts, a report in the Middle East Economy said.
As reported by Xhinua, the pound’s parallel market exchange rate versus the greenback briefly touched a record low of EGP75 for every dollar. The currency’s official exchange rate versus the dollar has remained at EGP31:USD1.
Meanwhile, the reports on the funding agreement between Egypt and the International Monetary Fund (IMF) are believed to have spurred the pound’s resurgence in early February. For instance, a Feb. 5 Alarabiya News report attributes the pound’s nearly 40% gain versus the dollar to claims that Egypt and the IMF have agreed to expand the scope of the former’s program from billion to billion.
#EgyptWatch
: NO MONEY SUPPLY CONTROL = NO INFLATION CONTROL.
The Central Bank of Egypt confirmed the money supply (M2) grew 19.92% in 2023. That's way above Hanke's Golden Growth Rate of 7.3-11.3%, a rate consistent with hitting Egypt’s 5%/yr – 9%/yr inflation target.
No…
— Steve Hanke (@steve_hanke) February 4, 2024
Despite the hope brought by the news of the country’s agreement with the IMF, critics of the Egyptian government like Steve Hanke, a professor at the Johns Hopkins University, believe the country is not yet on the mend. To support this point of view, Hanke, in one of his posts on X, cites Egypt’s inflation rate which he placed at 139%. In other posts, Hanke also points to Egypt’s high debt as one of the reasons he is less sanguine about the country’s prospects.
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Report: Egypt Wants to Have a Functioning CBDC by 2030
Egypt reportedly aims to launch a central bank digital currency by 2030 to boost the competitiveness of its national currency. According to an Egyptian economic expert, a digital currency issued by the central bank is more secure than privately issued cryptocurrencies.
Enhancing Monetary Policy Efficiency
According to a report, Egypt plans to issue a central bank digital currency (CBDC), the e-pound, by 2030. The Central Bank of Egypt (CBE) will issue this digital currency, which is expected to boost the competitiveness of Egypt’s national currency and enhance the efficiency of monetary policy.
Details of the North African country’s CBDC goals are explained in a report of a study commissioned by the Egyptian Council of Ministers’ Information and Decision Support Center. Dubbed the “Document on the Most Important Strategic Directions of the Egyptian Economy for the New Presidential Period (2024-2030),” the document identifies policies that are critical for the Egyptian economy over the next six years.
In addition to listing the launch of the CBDC as one of its priorities, the document also urges Egyptian monetary authorities to continue their work on developing the financial sector. The objective, just like with the launch of a CBDC, is to help Egypt achieve 100% financial inclusion by 2030.
Meanwhile, Sayed Khedr, an Egyptian economic expert, is quoted in the Egypt Independent report extolling the virtues of an officially issued digital currency. Khedr also explained why the e-pound is superior to anonymously issued digital currencies like bitcoin.
“We do not know who invented Bitcoin, so the safety rate is low. On the contrary, if digital currencies are officially implemented by the central bank, the security rate will be higher,” the expert reportedly said.
Khedr, however, sought to assure Egyptians that the launch of the CBDC would not result in a reduction in the number of banknotes in circulation. He also claimed that the CBDC is capable of indirectly supporting the economy if marketed widely.
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Egypt Becomes First MENA Country to Issue Chinese Yuan-Denominated Bonds
Eygpt has reportedly become the first Middle East North Africa (MENA) region country to issue so-called “panda bonds” after it issued Chinese yuan denominated bonds worth 9 million. Issuing panda bonds marks another step in Egypt’s attempts to move away from costly dollar denominated loans.
Egypt’s Worsening Debt Affordability
Egypt, one of Africa’s heavily indebted countries, recently issued Chinese currency denominated bonds worth an estimated 9 million or 3.5 billion yuan. The three-year bonds, which were reportedly issued with an interest rate of 3.5%, are part of the North African country’s attempts at diversifying the country’s funding sources.
According to a Business Insider report, the rate of interest on these bonds is much lower than what Egypt would ordinarily pay were they denominated in dollars. Lowering the cost of servicing its debts remains a priority for Egypt, which recently had its credit rating status lowered to Caa1, some seven levels into junk status. Egypt’s worsening debt affordability was cited by rating agency Moody’s as one of the reasons why the country’s credit status was cut.
However, Mohamed Maait, Egypt’s finance minister, is quoted in the Business Insider report expressing his country’s desire to rein in on borrowing costs.
“We are working on diversifying our financing sources through different capital markets as well as securing guarantees from several institutions to reduce the cost of the debt during this challenging high interest-rate environment,” Maait reportedly said.
Egypt’s De-Dollarization Drive
The yuan bonds, also known as “panda bonds,” are debt instruments issued by non-Chinese entities. The bonds can only be sold in China, while issuers are not permitted to repatriate such funds. Poland and the Philippines are known to be the only countries to have issued such bonds.
By issuing the so-called panda bonds, Egypt has become the first country from the MENA region to do so. The move also makes good on Egypt’s pledge to de-dollarize its economy. Meanwhile, in addition to the panda bonds, Egypt is also reportedly planning to issue Japanese yen denominated bonds or “samurai” bonds.
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Egypt Struggles With Skyrocketing Inflation and Depreciating Currency, While Bitcoin Nears Record High in the Country
According to the Egyptian Statistics Bureau, Egypt’s annual inflation rate hit 36.8% in June, a staggering 33.7% increase from May’s inflation rate, breaking records. Egypt, the world’s 14th most populous country, grapples with soaring prices for goods and services across the region. Additionally, the bitcoin exchange rate in Egypt is approaching the record high set in November 2021.
Egyptian Pound Plummets as Inflation Reaches Highest Level in Decades, Bitcoin Nears All-Time High
Recent inflation figures show Egypt is currently grappling with soaring inflation rates. The annual inflation rate surged to 36.8% in June. Citizens face rising food prices, a depreciating currency, higher fuel costs, and a growing fiscal deficit. Since June 2022, when the inflation rate was at 14.7%, the cost of goods and services in Egypt has more than doubled.
The Egyptian pound (EGP) has declined significantly against the U.S. dollar in the first half of 2023, according to the latest exchange rates. The EGP’s value has dropped 80.25% against the dollar since Dec. 26, 2003, with 42.09% of that decline occurring within the past five years. The currency has depreciated nearly 20% against the U.S. dollar since the start of 2023. Additionally, the inflation rate in Egypt has reached the highest level recorded since 1958.
In response to the inflation crisis, the Egyptian government has taken measures such as reducing state spending. Moreover, the Central Bank of Egypt increased the benchmark bank rate four times in 2022. Despite the significant rise in inflation in Egypt, the exchange rate of the Egyptian pound (EGP) against Bitcoin (BTC) indicates BTC is nearing a record high. The current exchange rate is nearing the all-time high set in November 2021, when BTC surpassed one million EGP per unit. As of July 10, 2023, the exchange rate is 936,506 EGP per Bitcoin.
Egypt’s ongoing currency crisis and rampant inflation have severely impacted its citizens. An Egyptian family told the Wall Street Journal in April they were “hardly surviving this crisis” and were running low on food. In order to mitigate the severe inflationary conditions, on January 16, 2023, the government announced a plan to sell discounted bread to low-income Egyptians most affected by the economic upheaval.
According to government statistics, nearly 30% of Egyptians live below the poverty line. Egyptian policymakers have also been seeking assistance from the International Monetary Fund (IMF) and the World Bank. Since 2016, Egypt has received multiple financial support packages from the IMF. The most recent of these, a billion loan, was approved by the IMF in December 2022.
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Ethiopia Joins Egypt in Seeking BRICS Membership
Ethiopia has joined Egypt and Algeria in applying to become a member of Brazil, Russia, India, China and South Africa (BRICS) economic bloc. According to the Ethiopian Foreign Affairs Ministry, joining the bloc would help the country guarantee its national interests.
Safeguarding Ethiopian National Interests
Ethiopia, which has one of Africa’s fastest-growing economies, has become the latest African country to seek to join the Brazil, Russia, India and South Africa (BRICS) economic bloc. The North East African country, which has waged a bloody war against Tigray rebels, joins Egypt and Algeria in seeking to join BRICS.
According to a report in The East African, the country’s Foreign Affairs ministry believes joining a global institution such as BRICS will help advance Ethiopian national interests.
“As a country that has been a founding member of global institutions like the AU [African Union] and the UN [United Nations], and as we seek to guarantee our national interests, it is important to join blocs like BRICS,” the ministry reportedly said.
Ethiopia, like its counterpart Egypt, has grappled with shortages of foreign exchange and has seen the gap between the official and parallel market exchange rate of its currency versus the U.S. dollar widen to a record high. The National Bank of Ethiopia (NBE) has attempted to remedy the situation by imposing limits on the amount of U.S. dollars that residents can take outside the country.
However, by joining BRICS which is planning to launch an alternative reserve currency, Ethiopia hopes to reduce its dependence on the greenback. The country’s wish to join BRICS is coming at a time when some African nations are seeking to diminish the influence of the U.S. dollar in intra-continental trade.
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Egypt Applies for BRICS Membership, Seeks Trade in National Currencies
Egypt has filed an application to join the BRICS bloc, Russia’s ambassador to the Arab nation confirmed. The government in Cairo is interested in using alternative currencies in foreign trade, either national fiats or a new common currency, the diplomat unveiled.
Egypt Takes Step to Join BRICS Club, Russia Backs Bid
Egypt has applied to become a member of the BRICS bloc of nations, according to the Russian Ambassador to Cairo, Georgy Borisenko. In an interview with the Tass news agency, the diplomat explained:
Egypt has submitted its application to join the BRICS group because one of the endeavors that BRICS is currently pursuing is to shift trade to alternative currencies, be it national currencies or a new common currency. Egypt is very much interested in that.
Borisenko also pointed out that Egypt is willing to boost trade and economic cooperation with the Russian Federation. He revealed that new payment mechanisms are currently being developed to facilitate international trade transactions.
BRICS, which unites five of the largest emerging economies (Brazil, Russia, India, China, and South Africa), was formed in 2006 as an alternative to the Group of Seven (G7) format comprising the most advanced economies. It has already become the world’s largest bloc by share of global gross domestic product (GDP), according to a study released earlier this year.
The foreign ministers of the BRICS members met in Cape Town in early June and discussed the organization’s enlargement. The meeting was also attended by top diplomats from the 12 other countries that want to join the group, including Egypt. The launch of an international reserve currency based on the currencies of the BRICS states is likely to be on the agenda of the BRICS summit in August.
Speaking to RIA Novosti, Borisenko emphasized that Russia supports Egypt’s bid to join BRICS but noted that this can happen only after the criteria and procedures for admitting new countries are agreed upon by the current members which still have different opinions on this matter.
The ambassador reminded that in 2021, Cairo was accepted as a shareholder of the New Development Bank (NDB) under BRICS, again with Moscow’s backing. In February 2023, Egyptian lawmakers hailed the parliament’s endorsement of a pact allowing the country to join the NDB, stating that the move will reduce its demand for U.S. dollars and enable it to preserve its foreign currency reserves.
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National Bank of Egypt Joins RippleNet for Blockchain Remittances
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Egypt Lays Out Path for a Crypto Future With Draft Law
n First crypto law in Egypt is anticipated this year, but what made the country call off the ban and welcome the new technologyn
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Egypt: Islam Forbids Bitcoin
Egypt’s Dar Al Iftaa have issued an Islamic Ruling (Fatwa) which expressly forbids using Bitcoin as a means of exchange on religious grounds. According to multiple government ministers, the cryptocurrency threatens the economy, funds terrorism, and because it lacks set rules, it is “considered as a contract annulment in Islam”. These factors have influenced the decision by the government body concerned with ensuring that legislation is inline with religious creed within the nation of Egypt.
Counsellor of the Republican’s Mufti, Dr. Magdy Ashour told Egypt Today on Sunday:
This currency is used directly to fund terrorists.
The announcement comes less than a month after the Head of the Egyptian Financial Supervisory Authority, Mohamed Omran, recommended that citizens there should refrain from trading digital currencies. On December 17, 2017, he declared that Bitcoin trading was illegitimate in Egypt.
The staunch anti-Bitcoin sentiment of Egypt’s legislators has been echoed elsewhere in the Muslim world too. According to the Middle East Monitor, Saudi Minister, Assim Al-Hakim recently declared the currency as contraband:
“…it is a cryptographic form of money that is vague and gives namelessness to crooks… We know that bitcoins remain anonymous when you deal with it… which means that it’s an open gate for money laundering, drug money and haram [forbidden] money… Muslims should not get involved in such dubious transactions simply to make a quick buck, to make a quick profit. This is not an Islamic concept.”
Whilst it’s hardly surprising that a belief system which exerts as much control over people as Islam finds the anarchic digital currency that is Bitcoin a threat, it is a shame that Egypt is not more welcoming of financial innovation. According to Egypt Today, most of the 93 million people living there are without bank accounts. It’s in such localities that Bitcoin and other cryptocurrencies could be most effective. Bitcoin allows its users to become their own bank. They needn’t get permission from any entity to transact using the network, and they can do so without access to traditional banking infrastructure. It represents a form of financial freedom that many governments across the globe are understandably wary of. However, in the case of Egypt, because electronic banking lacks regulations for digital currency, retailers are unable to accept it as a means of payment. This unfortunately dramatically reduces the revolutionary potential of Bitcoin.
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