Other than cool-looking banknotes, which is definitely not as cools as the ones we loved on ‪#‎Egyptian_Currency_Design_Challenge‬ on Facebook, Egyptians will definitely deal with the aftermath of such a decision.

15107335_1671291136494119_7951467539759520742_n

Before analyzing the outcome of the decision, let’s first explore why it would be useful. Many governments would resort to revamping and reprinting the local currency so that people are forced to deal with formal channels like banks and others and legalize their monetary standing. Many illegal earners & tax-fleers would skip banks and cash in their savings at home, and even sacrifice the deposit interests, just to avoid paying taxes or having to justify their income, usually resulting from illegal activities. Now with new banknotes, they cannot keep their cash at home any longer or else they will be useless sheets of paper.

The un-banked cash amount in Egypt is estimated to reach the 400 billion mark annually starting 2017, amounting for around 7% of Egypt’s Gross Domestic Product (GDP).

Cash At Banks Will Increase

The first and most straightforward impact will be on banks. The majority of cash holders will go to banks to deposit their old banknotes while still useful and either exchange them later or keep them safe at banks, only now they will have to confirm the source of the deposited amount much more seriously than how deposits are being done today. That’s why the majority of those who go to banks will have been cautious individuals with legal sources of income who never tried banks for a reason or another.

They will have to confirm the source of the deposited amount.

Tax Inflow Will Definitely Increase

This would be probably the second remarkable surge in tax inflow to the Egyptian government, just like it happened in the early 2000s. Back then, it was most costly and much harder to try and avoid paying taxes when a brilliant administration made it easy, fair and affordable to pay taxes and legalize your financial standing. That resulted in a huge boost in tax returns. Similarly, it is now easy to hide income by keeping it in cash at home but after the reprinting and new regulations, it should be less expensive and hectic for many to actually comply, report their real income and pay taxes.

Cashless Transactions Will Prevail

Now more than ever, cashless transactions will dominate more than ever. Very recently, many gas stations already adopted credit/debit card transactions. Very soon, many kiosks will too, to name a few. This is a very visionary outcome of the currency renovation and will boost the economy positively on many fronts, including the benefits of credit as well as the reduction in currency printing costs.

Women in egypt
Photo courtesy of erpecnewslive.com

Prices Will Rise… Again

The link might not be clear here, and it’s never a direct and automatic result of reprinting the EGP, but it’s a very probably one.

With illegal earners & fleeing taxpayers trying to protect their wealth before it becomes useless sheets of paper notes, they will attempt to buy as many valuables as possible. They will definitely go for real-estate, foreign currency & gold. A fake high demand will result in a price increase in those all, not only for those illegal buyers but for the entire Egyptian community. And similarly, an eventual immediate drop will take place after things balance out, resulting in huge losses for some.

They will definitely [buy] real-estate, foreign currency & gold.

Such a surge in prices will definitely result in a higher inflation, because unfortunately, our economy couples USD rate with inflation due to our extensive imports.

15025619_10154844333263115_7511572918002364550_o

It Could Still Work Anyway

It’s worth mentioning that such decisions should be implemented immediately in order to avoid any of the downsides and workarounds that would have a negative impact on the economy. We also believe it won’t be soon because people are widely talking about it already on the streets as much as in TV talk shows, and this means it is not worth implementing at least for now.

Advertisements

Written by The Wall Corp Journal

The WCJ team manages the firm's journal and serves as a main platform to broadcast our views, analyses, comments and advice on the economy, investment scene and business outlooks.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s