Dollars Go Where The Egyptian Government Flushes Them
It’s the government’s job to set the monetary policy and what this means is setting pressuring powers over currency flows. Intentions put aside, actual pressuring powers are what we are analyzing here.
Away From Banks
Dollars are definitely being pushed outside banks. Of course the government intends to push them into banks but the current policies are definitely going against that. One would think if there are barriers to withdraw dollars from banks, this means they will stay in there. However, dollars are already outside banks and if this is the case, dollars won’t even get in. They will keep out; no one wants to deposit their money in the bank and not being able to withdraw it back.
Not Even On The Way To Banks
Banks don’t offer interests on USD deposits. It’s just like a big safe box where you keep your money and earn nothing on them. In fact, if you go below a certain limit, you pay a fee. Why would anybody deposit their money in banks then?
Dollars are most profitable when kept home; this is exactly what the current monetary policy is implying. If you were given a chance to either keep their USD home or to buy any goods, they would keep them because their values would jump out of nowhere.
This is what the government wishes for, but will hardly happen because manufacturing requires lots of overheads, spare parts and raw materials which require lots of dollars. While dollars are held in custody, those industries will be very slow and will rarely grow.
Another logical result of the pressures being put on the USD, but this isn’t happening because it isn’t directly encouraged in the first place. Exporting means selling a good or service that is demanded abroad. Unless it’s manufactured in Egypt, this requires initial foreign investments first so that we prepare for export. Foreign investments are definitely discouraged because of the same pressures. The end result is very slow exporting progress.
More and more USD transactions between Egyptians will happen abroad without even passing through Egyptian banks. If you have a liability to fulfill abroad and you just earned a USD cheque, would you deposit in Egypt? You’ll simply transfer it. Makes sense. But with the current pressures, traders are actually encouraged to do this more & more.
If the same monetary policy persists, dollars will find their paths outside the country even with all the efforts invested in manufacturing and exporting. One of 2 major events should take place, either we have a major industry to lead and export, or rely on increasing foreign investment by gaining their trust. In one of our articles, we once mentioned how foreign investments don’t find their ways to Egypt. Read more here: Dollar Routes In Egypt.