Dollar price falls in parallel markets relieving pressure on consumers but causing uncertainty for businesspeople, traders

The Egyptian pound has rallied on parallel markets over recent days, after reaching an all-time low last week at an exchange value of around LE70 to the dollar.

Instead, informal exchange rates ranged between LE57 to LE55 to the dollar on Tuesday.

Over the same period, gold prices — an asset commonly purchased as an alternative to saving in Egyptian pounds — have also eased off, falling by as much as 17 percent per gram since the end of last week.

The upward swing in the Egyptian pound’s value comes amid intense security campaigns targeting informal currency traders, as well as heightened crackdowns by the Interior Ministry and the Consumer Protection Agency on traders accused of “hoarding and withholding goods.”

At the same time, rumors have circulated about a potential influx of dollars headed for Egypt’s state coffers. Unconfirmed news circulating in local media has pointed to a huge injection of cash incoming from the UAE for a major development on the north coast, Ras al-Hikma. An increase to the existing loan from the International Monetary Fund (IMF) is also expected.

Things seemed suddenly under control after the pound’s appreciation, with the change in the exchange rate contributing to stabilizing spiraling consumer and industry prices domestically. The prices of steel, chickens, green beans, rice and oil have all dropped.

But for domestic markets, traders and businesspeople, turmoil persists beneath the surface and is producing a general state of paralysis, according to traders and importers in various sectors who spoke to Mada Masr. All requested anonymity due to the sensitivity of the situation.

One major gold trader said that the decrease in the price to buy dollars in Egypt is a "political decrease” — that is, not a natural outcome of market mechanisms but rather a deliberate move by the government to effect a decrease in the black market dollar rate by any means possible.

"It's as if the government gathered the major players in the black market, waved a club at them, and told them that the dollar must decrease," said the trader.

A fabric trader said that security forces have recently arrested more than 20 prominent currency traders in the fabric market in Cairo’s Al-Azhar area, adding that among them are some who are rumored to be purchasing dollars on behalf of the government.

But an analyst at a financial security firm described the security measures as a “failure of choice” when it comes to dealing with the structural issues at play.

Dollar scarcity has thrown Egypt’s economy into a downward spiral. Weak foreign currency inflows and a demanding debt repayment schedule have drained national foreign currency reserves, and placed downward pressure on the exchange rate.

The Central Bank has held the official value of the pound steady at around LE31 against the dollar since early 2023, while its value has sunk on parallel markets. Businesspeople have adapted accordingly.

But parallel market turbulence over recent days has brought transactions to a near-halt, according to the sources, especially as some traders incurred millions in losses due to exchange rate fluctuations and the sudden depreciation in the price at which they can buy and sell dollars.

The gold market is also experiencing similar turmoil, according to a trader who pointed out that raw gold traders have stopped selling to retailers. "Small-scale traders are afraid to sell even a single ring at today's prices, as they are unsure if they will be able to buy another ring from wholesalers at the same price," he explained.

Traders and importers are also struggling to buy dollars on the black market at the low exchange rate. Many said it is possible to sell dollars for pounds at a rate of around LE55 to the dollar, but were unanimous in saying it's impossible to buy dollars in parallel markets at this rate.

They expressed fear that this will endanger their capacity to import in the future, as imports require dollar deposits to be placed in the bank first.