Egypt starts currency auctions to boost foreign reserve levels

Reuters and Ahram Online, Saturday 29 Dec 2012

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

Central Bank of Egypt

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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