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Egypt starts currency auctions to boost foreign reserve levels

Egypt's Central Bank announced Saturday it would implement currency auctions as reserves reach critical levels

Reuters and Ahram Online, Saturday 29 Dec 2012
Central Bank of Egypt
Views: 1599
Views: 1599

Egypt's Central Bank has introduced a new auction system for buying and selling US dollars to help conserve foreign reserves, which it says have reached a critical level.

Political turmoil over the last month has prompted a rush by investors and ordinary citizens to switch their Egyptian pounds into foreign currency on concerns that the government might devalue the pound or bring in capital controls.

The Central Bank has spent more than $20 billion in foreign reserves to support the pound since a popular uprising toppled Hosni Mubarak in early 2011. Political turmoil has chased away tourists and foreign investors since.

Reserves fell by $448 million in November to $15.04 billion, enough to cover only three months of imports, and bankers said the rush to buy dollars was certain to have drained foreign reserves even further in December. The Central Bank is expected to report December figures in the first week of January.

"The current level of foreign currency reserves represents the minimum and critical limit," the Central Bank said on its website Saturday.

"This requires their being conserved for critical uses, as represented in fulfilling foreign debt obligations to preserve Egypt's reputation in international financial markets, and to cover imports of strategic commodities," it added.

The new system will take effect Sunday, 30 December, and run alongside and not affect the current interbank currency market, the Central Bank said.

It added the auctions would be held regularly and that banks would be asked to submit bids, but gave few other details.

Egypt said it would continue to meet instalments and interest payments on its foreign debt and allow transfers by foreigners who had invested on the stock exchange.

The Central Bank said the banking system's finances remained "strong and secure," but called on Egyptians to "rationalise their use" of foreign currency and not to speculate.

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29-12-2012 10:12pm
We Need A New Currency
Stop fighting fire with fire; fight fire with water. Rather than wasting money on supporting the Egyptian pound that is under constant attack, we need to issue a new currency. The old currency should be traded at a 10:1 ratio to make the new currency appear stronger compared to other nations' currencies. The Israelis have done this, so what is good for the goose is good for the gander. Once Egypt deals with this issue, it can finally get down to the real issue of restoring the nation.
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