Abdel Aal told Daily News Egypt that it is highly expected that the CBE will conduct further devaluation of the pound against the dollar, but it is unlikely to happen soon.
This step will be the last round in the CBE’s fight against the currency traders, Abdul Aal said. If the CBE is unprepared for this devaluation of the pound, it may have a negative impact on the market.
“Currency traders in the informal market will face any new devaluation of the pound in the formal market by raising the price of the dollar in the informal market, for example if the dollar exchange value increases to EGP 9 in the formal market, for example, it will register at EGP 10 in the informal market, and so on,” Abdel Aal explained.
The CBE must obtain sufficient dollar liquidity to allow it to intervene in the market and face any speculation on the dollar, he said. The CBE should also have powerful tools that ensure its grip on the market and the stability of the dollar exchange value against the pound.
He explained that the government and the CBE should consider implementing several procedures to ensure the stability of the foreign currency exchange market and prevent any speculation on the dollar.
These procedures include imposing strict regulations over transferring remittances, so that all transfers are conducted through the banking sector, from one bank to another, which prevents any currency trading outside the banking sector.
Abdel Aal noted that remittances represent the primary resource of the dollar for the informal market, and the CBE can end currency trafficking by preventing access to this resource.
The value of these remittances records approximately $20bn annually, and the banking sector obtains only a limited portion of this value, while the remainder goes to the informal market, either inside Egypt or abroad, he said.
He added that the state could control these transfers by imposing taxes on expatriates, and exempting those who remit their savings through banks.
When asked about the consequences of such a move, Abdel Aal replied that the economy is currently undergoing difficult circumstances, and this step could lead to positive or negative results. It would be better for the state if these transfers did not enter the market, rather than trading them outside banks, as we do not reap any benefit from them if they are conducted outside banks, he added.
According to Abdel Aal, Egypt is not financially better off than the United States, which collects taxes from its citizens everywhere under the Foreign Account Tax Compliance Act (FATCA), therefore the state has the right to demand taxes from its citizens abroad, as long as it does not violate their rights.
He pointed out that Egyptian expatriates can either transfer their savings through banks, or keep them and not sell them, either inside or outside Egypt.
If the state really wishes to completely eliminate the informal market, it should criminalise currency trafficking and enforce harsher penalties for this crime. Most importantly, those penalties must be implemented, and there must be a crackdown on currency traders inside and outside Egypt
Abdel Aal also suggested closing all exchange companies, even temporarily, to restore stability and control the currency exchange market.
He noted that the exchange companies are currently the most prominent speculators in the informal market.
He highlighted the importance of preventing licences from being granted to new importers, unless the company will import food commodities or production requirements. The banking expert demanded that the financing of non-essential imports continue to be prevented.