This Tuesday was the first since the end of December 2012 in which the Central Bank of Egypt (CBE)
did not pose its tender to sell US dollars to banks— something that has been conducted regularly for almost four years.
Former CBE governor Farouk El-Okdah had suspended the inter bank mechanism that allowed banks in Egypt to trade US dollars among themselves, replacing it with a foreign exchange auction. This came on the back of the emergence of a foreign currency shortage at banks, hindering their ability to secure dollars to meet their clients’ needs of hard cash. The CBE, at the time, adopted this technique to help banks overcome the shortage they suffer.
Since then, the CBE posed these tenders three times a week, selling variable amounts of the greenback to banks, up until current CBE governor, Tarek Amer, changed the mechanism and replaced the three auctions with one per week and fixed the amount it offers banks at $120m each time.
Between the end of December 2012 and 1 November 2016, the CBE posed 517 regular foreign exchange auctions, with variable values amounting to $21.27bn. Moreover, it also posed nine exceptional auctions, through which the CBE offered $7.397bn. The total value of foreign exchange that the CBE sold to banks in its auctions over almost four years registers $28.667bn.
The CBE decided on Thursday, 3 November, to liberate the exchange rate and fully float the Egyptian pound. It gave banks in Egypt the right to set their own foreign exchange rates. At the same time, it announced it will stop selling US dollars to banks through auctions, noting it may intervene directly if the new mechanism does not work as planned.