Reasons Behind US Dollar Sudden Decline in Egypt's Parallel Market

In an unexpected development, the price of the dollar on the parallel black market witnessed a significant decline, as its value decreased by 5 pounds during the trading session on Thursday, the first decline of its kind during the current month.

This sudden plunge is due to a sharp decline in demand for the dollar on the black market. Its price fell to about 47 pounds compared to 52 pounds during the previous session due to a significant decline in demand.

In November, the parallel market witnessed huge jumps in the price of the dollar on the black market as a result of the increasing demand for it, which led to its rise to historical levels that reached 52 pounds in light of the shortage of supply in banks and money exchange offices.

There are several reasons behind the decrease in the price on the black market, including the extension of UAE and Kuwaiti deposits with the Central Bank of Egypt (CBE).

Another question that arises is: Is it a coincidence that the dollar fell with Egyptian President Abdel Fattah El-Sisi’s meeting with the Director of the International Monetary Fund, Kristalina Georgieva?

The positive results of the meeting, which was held on the sidelines of the United Nations Climate Change Conference (COP28) in the UAE, indicate that the International Monetary Fund and Egypt will continue to on the loan programme, which is worth $3 billion. The International Monetary Fund also promised to strengthen this loan after the European Union promised Egypt billions of euros to confront the repercussions of the war on Gaza, and that Egypt hosts about 9 million foreigners on its territory, which prevents illegal immigrants from heading to Europe.

Moreover, the truce in Gaza, which has entered its seventh day, raises hope, albeit slight, of reaching a complete ceasefire between the Palestinians and the Israeli army.

The question here is: Is it possible that the gap between the official and parallel markets reached 60% in the market, or is it only in numbers? Are traders really purchasing the dollar at 52 pounds?

PM Mostafa Madbouly said Tuesday that the government wants to bridge the gap between official and parallel market prices.

The main problem is the scarcity of foreign reserves, which have dried up due to huge public spending on national projects, but mainly due to the pandemic and the Russian-Ukrainian conflict. Yes, the Central Bank announced that Egypt’s foreign exchange reserves amount to $34.9 billion, but about 18 billion of them are deposits from Gulf countries, and rating agencies lower Egypt’s credit rating every time, when a huge amount of debt maturity day comes, reporting that Egypt will face difficulties in repaying its external debts.

However, Egypt, always prove them wrong. The north African country is a has a stable and big economy. It depends on several tools to build foreign reserves, including the Suez Canal, tourism, investments, deposits and bonds, gas exports, and initiatives for Egyptians abroad.

Traders did not buy the dollar at this price, which is why it fell more than 5 pounds in one day. The price doesn't really matter, it's just an indicator, what really matters is whether people buy at that price or not. You can offer a car for sale for twice its worth, but will you actually be able to sell it for that price?

Meantime, Banks are facing increasing pressure as a result of the shortage of foreign exchange, due to the exit of investments worth $22 billion in the middle of last year. This is due to the negative repercussions of the Russian-Ukrainian war.

In conjunction with these developments, we have seen a narrowing of the dollar exchange rate gap between the black market and banks. The gap approached 16 pounds, with the banking sector recording a price near 31 pounds, a price that has been stable since approximately last March.

The value of the dollar has risen by 96% against the pound, after undergoing three waves of devaluation. The price of the dollar reached from 15.76 pounds in March, 2022 to about 30.94 pounds currently. This rapid rise reflects the impact of economic factors on the exchange market.

In conclusion, the decline in the price of the dollar on the black market appears as an indicator of rapid transformations in the currency market. The price is greatly affected by many economic and political factors, and this decline appears to reflect the market's response to those shifts.

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