Egypt Imposes Penalties For Trading Dollars On The Black Market

The Egyptian government has introduced penalties for traders selling foreign currency on the black market. An acute dollar shortage has resulted in the development of a black market for the currency resulting in widely differing exchange rate.

According to the new regulations, traders can be given a prison sentence of up to three years and fines to the extent of 5 million Egyptian pounds ($563,000) if found guilty of selling foreign currency on the black market. The crackdown has however had little impact on easing the widening gap between the official rate and the black market rate.

The central bank’s auction earlier this week placed one dollar at 8.78 pounds while dealers in black market were charging 12.65 pounds per dollar, an increase over last week’s rate which was in the range of 12.20-12.50.

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The country’s central bank has revoked the licenses of several traders after it was found that they were selling dollars at rates that were vastly different from the official rate. In a statement, Ali Abdelaal parliament speaker said,

Egypt currency exchange bureaus are like cancer and I call on parliamentarians to draft a legislation that abolishes and eliminates them completely.

The dollar shortage has its origins in the 2011 uprising that resulted in the ouster of former President Hosni Mubarak which frightened away tourists and investors from the country, who were the primary sources of foreign currency. Traders say that the recent crackdown has worsened the situation as people selling dollars are choosing to avoid the official financial system which will ultimately result in additional pressure on the national currency and impact inflation and economic growth.

The net foreign reserves for Egypt have fallen from $36 billion in 2011 to $15.53 billion in July 2016. The government is currently in negotiations with International Monetary Fund (IMF) for a $12 billion lending program spread over three years which would help the country recover, improving market confidence and bolstering measures to attract much-needed foreign investments into the country.

The Egyptian central bank has been taking number of measures to improve liquidity in the market including removal of caps on forex transactions and restrictions. Experts have urged the country to devalue its currency but the government has not been keen to do so. Another suggestion has been to remove its dollar peg and link it to a basket of currencies or introduce a managed floating regime. The Central Bank Governor Tarek Amer has said that he would consider such measures only when forex reserves reach at least $25 billion.

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