The Central Bank of Egypt auctioned $200 million at 8.85 per Egyptian pound rather than the prevailing 7.73. The inflationary move of devaluation is intended to help the country gain a more solid financial background due to a persisting “dollar shortage” that nobody seems to hold in much curiosity. Despite the fact that this is a widespread and growing problem, no matter where it occurs there is no rush to explain it outside of cursory platitudes. It is just taken as a given, mostly blamed on oil prices or some other bland geopolitical idiosyncrasy.

Tourism and foreign investments, key sources of hard currency for the import-dependent economy, have yet to pick up after the uprising in 2011 due to political unrest. A string of recent terror attacks has further weighed on sentiment. Egypt’s foreign reserves have fallen by more than half since early 2011 to about $16.5 billion at the end of February.

All of that sounds entirely plausible, but it does not account for why, all of a sudden, Egypt is so acutely short of “dollars” right now. About a week ago, the Egyptian central bank eased restrictions that limited currency deposits and withdrawals for individuals, keeping in place caps for corporate entities.

Egypt, which relies heavily on imports, has been wrestling with a currency crisis and struggling to revive its economy since a 2011 uprising drove away foreign investors and tourists, both major sources of hard currency.

Reserves have tumbled from $36 billion in 2011 to $16.5 billion at the end of February and the central bank has been rationing dollars through weekly auctions… 

The central bank had taken several measures to relieve the dollar shortage in the banking system that had affected both importers and exporters who have been unable to pay for goods and raw materials.

 In January it raised the deposit limit for importers of some essential goods to $250,000 a month to relieve a dollar shortage that had resulted in goods piling up at ports.  

With that move, importers were able to deposit dollars obtained from the black market in order to pay for their goods.

This all raises several issues which none of the articles reporting on them ever address. First is the black market price of the Egyptian pound which has stretched all the way to nearly 10.00. The recent devaluation only bows to that reality, as an “overvalued” currency will manifest only in increasing pressure (Argentina, Venezuela). What isn’t described is why the currency is overvalued in the first place.