It is true to say that the Egyptian pound has been going through a period of violent declines for some time, with which yesterday the exchange rate of the dollar on the black market reached about 52 pounds, while the official price is still touching 30.9, that is, a difference of approximately 68 percent, while the exchange rate of the dinar in the parallel market reached about 160 pounds which means that one thousand is sold for 6.2 dinars, according to media outlets.
Of course, this talk is not new, but it has greater relevance. As soon as the pound reaches its lowest value in its history against the dollar, the obvious question comes to the minds of Kuwaitis depositors and investors in Egypt, as well as potential investors again: What is the impact of reaching this historical bottom on them? It is also natural for the same question to be directed to Egyptians abroad, including those residing in Kuwait.
With the escalation of pressures facing the Egyptian economy, including the risks of geopolitical tensions resulting from the war in Gaza, the intensity of speculation on the dollar against the pound on the black market increased, driven by the scarcity of green currency supply, and during this yesterday the pound recorded the lowest value in its history, despite the fact that international institutions one must believe that the pound is currently valued in the parallel market at lower than its fair price, which does not exceed 40 pounds to the dollar, and that the current state of uncertainty facing the Egyptian and global economy leads to exaggerated valuations of the dollar.
Regardless of the theoretical analyzes and speculations, there is a scientific question that controls the owners of money and assets in Egypt, related to their safe path currently and in the near future, and the extent of the impact of the violent speculation taking place on the pound on them?
In addition, the answer must be distributed among several analytical points that may be repeatedly listed with additional variables compared to the previous one, some of which relate to private money and others to government, part of which relates to liquid and semi-liquid investments and another to assets and investments under evaluation, taking into account that there is a long-term investment and another speculative one and for each of them.
This segment is considered the most affected by the decline in the exchange rate of the pound against the dollar to these historical levels. With the “harsh diet” journey that the pound has been going through since the beginning of 2023, as some like to call it, the losses of owners of the “cash” pound have doubled, whether they keep it in their homes or in their homes.
Deposits increased by about 63 percent, after the exchange rate against the dollar fell to about 52, compared to about 32 trading prices last January.
Therefore, those with liquid funds are exposed to huge losses in their capital values. Assuming that they obtained a deposit interest of 22 percent, which is the highest deposit rate offered as part of efforts to combat “dollarization” with savings tools that encourage deposits, they would have lost about 41 percent of their capital.
It can be said that holders of dollar deposits feel proud as they are the most prominent winners from the rise in the dollar exchange rate because of the high investment recovery they achieve, driven by the continuing decline of the pound.
Whenever the value of funds denominated in the local currency decreases, the value of their money in dollars increases at the same rate, and with the interest they receive being classified regardless of Regarding the low pricing on the Egyptian currency, they record a double interest, noting that the positive return on holders of dollar deposits includes funds that are nearing expiration and that are still on deposit for longer periods.
This category, whether Egyptians working abroad or Kuwaitis, is classified as one of the winners, given that its members have fixed obligations in the form of financing installments or repayments for real estate or lands in which they have invested, and of course they benefit from the decline in the value of the pound, as they in return record a significant decline in the values of their liabilities, considering that they pay their premiums from abroad, and then they will reap additional gains from the expansion of the black market.
Moreover, this category will benefit from the increase in the purchasing value of the assets in which they invest, assuming the scenario of implementing their projects according to the contracted schedule. Even if the project is delayed for an additional year, once it is delivered, it will be considered a double profit for investors who have been in it for some time.
The above benefit also applies to investors of real estate purchased some time ago in terms of an increase in their purchasing value and not a decrease in the capital value. Whenever inflation increases, the value of the property increases in return at approximately the same rate, and here at least break-even is achieved without loss or additional profits.
The impact of the decline in the value of the pound on the results of Kuwaiti companies and banks investing in Egypt cannot be ignored, and to mitigate the severe impact of the deterioration in the currency price, these entities resort to two paths.
The first relates to working to equalize assets with liabilities recorded in the same currency, and thus not being exposed to open positions in foreign currency weakens their assets. Here or there, therefore, if the dollar falls or rises in Egypt, the entity will not be affected at an alarming rate.
In order to increase the layers of protection of net profits that foreign companies in Egypt compulsorily retain from the risks of exchange rate fluctuations, financial policy makers resort to alleviating the accounting pressures resulting from the pound by employing this liquidity through more than one scenario, the most famous of which is raising the level of real estate assets, in addition to strengthening the bank’s capital base.
In both cases, the risks of negative pockets of the currency suffering from decline pressure are reduced.
The Kuwait Investment Authority is a long-term investment institution, meaning that its investments are not speculative. Therefore, according to its business model, any losses it achieves due to the decline in the currency exchange rate are recorded in its books as unrealized, taking into account the gains in the economic and financial budgets resulting from its presence in these markets in the long term.
Perhaps one of the most frequent discussions that opens with every new decline in the exchange rate of the pound is those related to the future of the loans of the Kuwait Fund for Arab Economic Development to Egypt, as well as the future of Kuwait’s two deposits in the Central Bank of Egypt, which are close to $4 billion.
The repeated and confirmed answer in this regard is that the “fund” considers The Kuwaiti dinar is the currency of lending and repayment, as it stipulates in its loan agreements that the loan is in dinars, and these agreements also stipulate that the borrowing countries are obligated to repay the loan in dinars as well. Accordingly, the Fund’s loans are immune from the decline in the borrowing country’s currency, as the borrower bears the exchange rate risks and not the Kuwaiti Fund.
Also, Kuwait’s two deposits in Egypt are far from being affected by the decline in the exchange rate of the pound, given that they were granted in dollars and will also be recovered in dollars.
With the widening of the exchange rate gap between the dinar and the pound to current levels, inflation in Egypt has reached rates that are very influential on the consumer, and as an inevitable result of this, despite the rise in the value of the dinar against the pound to current levels, Egyptians abroad and parents of Kuwaiti students in Egypt will not reap any profit margins from the deterioration of the exchange rate of the pound versus dinar.
Despite the increase in the number of currency notes corresponding to the dinar, the purchasing value of this number decreased in the local market, which makes sustainable family transfers to students fixed at their traditional rates and according to need the higher the value of the exchange rate of the currency corresponding to the pound, the higher prices in Egypt jump to rates that will eat up the price difference.
It is not expected that Egyptian expatriates abroad will gain an accounting benefit from the initiative to import a car due to the deterioration of pound prices, as it is known that the value of the payments that will be kept in a deposit will be in dollars and will be recovered after 5 years in the local currency, and the conversion will be at the official rate of the dollar.
Is it feasible for holders of deposits in Egypt to break them and smuggle their money abroad?
Accounting-wise, transferring liquid assets from Egypt at the present time, specifically “cash”, is considered useless and a costly investment negative. It is best to continue this money unless there are other reasons related to the need of its owners to recall it.
Aside from its moral and legal dimension, the behavior of smuggling money abroad constitutes hostile deals for its owners, because they will lose additional rates that they will be forced to bear with currency dealers in exchange for taking their money through the black market, where they will then allow their need to enter the reverse cycle of money to be exploited by dispensing with additional margins from their capital, which makes them vulnerable.
Therefore, the most appropriate solution for this segment is to wait for the new savings tools that are expected to be offered by the major banks, as has been the tradition, to alleviate the pressures of heavy capital loss and transfer their money from one deposit to another.
It is also possible, as companies do, to invest liquid funds in secured real estate assets, provided that they are in distinctive locations that ensure easy liquidation in the future if the situation improves, thus combating the fires of inflation resulting from the decline in the value of the currency.
From 1939 until last month, that is, during 84 years, the exchange rate of the dollar rose at record rates, jumping from about 0.2 pounds in 1939 to record about 30.85 pounds in banks, which means that its price multiplied more than 154 times.
Since 2016, the exchange market in Egypt has witnessed major changes that coincided with the government’s announcement of the implementation of the economic reform program, which began by floating the Egyptian pound against the dollar.
In contrast to the indicative rate set by the Central Bank of Egypt at 13 pounds to the dollar, the exchange rate rose to record an increase of 131 percent, after the dollar jumped to 18 pounds, compared to 7.8 pounds before the flotation decision in November 2016.
The market remained in a state of calm until 2022, as the Central Bank of Egypt decided in March of last year to reduce the value of the pound from levels of 15.77 pounds to the dollar to levels of 19.7 pounds, a decline of 25 percent, and in October of last year, it was decided to devalue the pound from levels of 19.7 pounds to the dollar to levels of 19.7 pounds to the dollar.
As for the last float, it came last January, when it was decided to reduce the pound from levels of 24.7 pounds to the dollar to levels below 31 pounds, a decline of 30 percent, while yesterday the exchange rate of the dollar on the black market reached 52 pounds, and it is not yet visible that there are barriers or buffers for a strong one that would curb the free fall that the pound has been experiencing for some time.
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