An Egyptian vendor sells nuts in front of a giant poster of a U.S. dollar outside a currency exchange office in Cairo (Photo: AP)
The Egyptian pound plummeted to an eight year low against the US dollar on Sunday afternoon, following a currency auction in which the Central Bank sold $75 million to local banks.
The dollar is currently priced to customers at LE6.365 plus a 2 per cent administrative fee, one banker told Ahram Online, Sunday.
At a maiden foreign currency auction on Sunday morning, the Central Bank sold US dollars to banks at a cut-off price of LE6.2425.
The Central Bank of Egypt (CBE) had announced earlier on Sunday several procedures to preempt a looming foreign currency crisis, including putting a limit on corporate cash withdrawals at $30,000 per day, Reuters reported.
It also placed a two per cent administrative fee on individuals who purchase foreign currencies.
"The new fee is curbing the demand on the US dollar a little bit, but a lot of people are coming to buy it at any price," a bank manager in downtown Cairo said.
The local currency is currently trading at a price between LE6.32 to LE6.38 in banks and currency exchange shops. The previous low for the pound, in October 2004, was about 6.26 to the dollar.
Egypt's currency market has been prey to uncertainty since a $4.8 billion loan with the International Monetary Fund (IMF) was postponed earlier in December. Rumors about a looming crisis and possibilities of Egypt 'going bankrupt' have prompted individuals to rush to exchange offices to buy up the hard currency.
The frenzy is augmented by the fact that Egypt's net international reserves, which have helped keep the exchange market stable since January 2011, currently stand at $15.03 billion.
The CBE said on Saturday it was introducing the new exchange regime to conserve foreign reserves, which it said had fallen to a critically low level.
The new regulations also put a limit on the amount of US dollars banks can hold. Under the new rules, Egyptians banks are not allowed to hold long positions in US dollars of more than one per cent of their capital.
EFG-Hermes, the largest investment bank in Egypt and the Middle East, published a report on 19 December expecting the pound to drop by the end of 2013 and reach 6.6 to the dollar.