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Dollars tight in banks after Egypt devaluation By Eman Wahby

CAIRO, Aug 5 (Reuters) - Egypt's exchange bureaux said they had dollars for sale, but banks had only small amounts available on Sunday after the Central Bank devalued the pound against the dollar and broadened the band in which the pound can trade.

The bank announced early on Sunday it had weakened the pound to 4.15 per dollar from 3.90 and had broadened its allowed trading band to plus or minus 3.00 percent of that core rate fom 1.5 percent.

Analysts said the devaluation would bring the new official rate broadly in line with black market rates of around 4.25 pounds per dollar and give a boost to the foreign exchange market at the expense of the black market.

Of four exchange bureaux approached for an amount of $5,000, three said they had dollars for sale at the official rate.

"The amount of 5,000 dollars are available anytime, so no need to wait for other buyers to get their dollars," one bureau employee said.

But another exchange bureau official, who said he had 5,000 dollars available, said black market rates would continue.

"The more they (the government) increase the central rate, the more black market rates will increase," he said.

"With this new rate, the dollar should then be sold at the rate of five Egyptian pounds in the exchange bureaux, not at the official rate. I only place the official rate in front of my bureau, but I do not deal with these rates," he added.

The government has said it will continue to crack down on exchange bureaux that speculate on the pound. A number have been shut down since the government first introduced a "managed peg" system in an attempt to prevent a sharp slide in the pound.

But market sources said the new rate would encourage people who were earlier holding on to their dollars to sell.

"With this rate there are dollars available in the market. But in two or three days we will see if black market rates will remain or not," said a source, adding the black market would thrive on a continued shortage of dollars.

CONTROLS AT BANKS

Bank controls on the sale of dollars appeared to be still in force. One bank contacted by Reuters said it could only provide 100 dollars under certain conditions.

"We have new orders for selling only 100 dollars provided that the client shows us an already issued visa and flight ticket," a banker said.

Egypt introduced a new "managed peg" exchange rate in January that allowed the currency to trade in a narrow band, initially set at one percent either side of the core rate, which itself was first set at 3.85 pounds to the dollar. It moved the rate to 3.86 to the dollar on May 28.

On July 3, the Central Bank changed the central pound-dollar rate to 3.90 and broadened the band, to make it plus or minus 1.5 percent for the U.S. dollar and Arab currencies, and plus or minus 2.0 percent for the other foreign currencies.

Egypt's exchange rate started to decline more sharply against the dollar in January following a gradual slide since May 2000, when it abandoned a nine-year currency peg at about 3.40 pounds.

http://www.zawya.com/zawya/legal/NewsLetter.cfm?name=reuterslegal

-- Martin Thompson (mthom1927@aol.com), August 05, 2001

Answers

I've been expecting the Devaluation Derby to begin any day now. But, who would have thought it would be Egypt that would kick it off?

-- wellesley (wellesley@freeport.net), August 06, 2001.

It does seem like devaaluation is in the air. Argentina is talking about it, Brazil is whispering, and, now, Egypt has done it.

-- Uncle Fred (dogboy45@bigfoot.com), August 06, 2001.