TRAVEL GAZETTE – Egyptian illicit currency dealers circumvent the banking regulations and use multiple visa cards to withdraw as much dollars as they can outside the country from their domestic bank accounts, using the dollar hike and the rate gap to make large profits.
The Central Bank of Egypt has been suffering declining foreign currency reserves over the past five years of political turmoil, falling from 36 billion U.S. dollars in early 2011 to 17.5 billion dollars as of end of May 2016.
The recent dollar hike made the dollar jump to be worth about 8.85 pounds in the official market and about 11 pounds in the black market, making the largest hike and the biggest exchange rate gap in the Egyptian modern history.
“Some Egyptian banks allow Egyptian clients abroad to withdraw up to 2,000 dollars per month at the official rate for their expenses, but an illicit dealer would use multiple visa cards for himself, his friends, partners or those he trusts and withdraw thousands of dollars at once,” a currency leader who identified himself as Adel told Xinhua, noting these dollars are taken from the reserves of the Central Bank of Egypt (CBE).
The trader explained that some people travel outside Egypt by the end of the month, carrying their visa cards and those of others, to spend a few days abroad and withdraw 4,000 dollars by each card for the two months, the outgoing and the new one.
“They don’t even have to come back with the dollars to sell them in the black market in Egypt, but sometimes they already arrange with importers who lack dollars to pay for their imports directly while they are abroad,” the man pointed out, warning the trick may eventually harm the CBE foreign fund reserves.
Banking expert Abdel-Rahman Baraka, former president of Misr Romania Bank and ex-chief of the Federation of Egyptian Banks, said that the Egyptian banks in the past did not have a problem for the use of visa cards by their clients abroad and provide them with all their personal expenses, whether related to hotels, purchases, etc.
“However, when the foreign currency reserves declined over the past few years amid devaluation of the Egyptian pound against the dollar, some people started to think about using these visa cards illegally abroad to make extra profits by withdrawing large amounts of dollars,” the ex-banker continued, describing the move as “cheap, dishonest an unpatriotic.”
Baraka said that the concerned Egyptian banks have given instructions to the visa card departments to limit monthly and daily withdrawals to avoid such a kind of circumvention, noting that banks at the same time did not want to bother their clients and always dealt with them on the basis of mutual trust.
“We do not want the banks to have to check if their clients are really abroad when their visa cards withdraw the dollars,” the banking expert said, expecting those using multiple visa cards to be normal customers lured by the rate gap rather than black market currency traders.
“This misbehavior does not pose any threats to the Egypt’s foreign currency reserves for only few expatriates circumvent the banks and the whole amounts of dollars are too limited in the end to affect the CBE reserves,” Baraka told Xinhua.
Egyptian expatriates sent back home over 19 billion dollars in remittances in the 2014-2015 fiscal year according to a CBE press conference in late 2015, given the remittances represent a key source of hard currency for the country that has seen suffering ailing economy, tourism recession and lower foreign investment and exports over the past few years.
Meanwhile, the CBE has been trying to crack down on the dollar exchange black market by invalidating the licenses of exchange offices and even imposing jail terms for those traders who deal far beyond the official rate.
Still, the two-pound difference between the official rate and the black market one attracts more people and traders to circumvent the regulations and attempt to make large profits at the expense of their country’s currency reserves, especially that many importers lack dollars to pay for exporting companies to bring their imports home.
For his part, Sameh Mostafa Zaki, board member of Cairo’s Chamber of Commerce and deputy chairman of the chamber’s exports department, downplayed the effect of such circumvention and illicit profits on the country’s overall currency reserves.
“After all, if each trader uses 10 visa cards to withdraw 2,000 dollars abroad to make a profit, it is not that much money in the end and would not have such a big influence,” Zaki argued.
The economist pointed out that the CBE has recently dealt with this issue and limited the dollar cash withdrawal abroad to few hundred while the visa card can still cover purchases, bills, etc, to avoid such manipulation.
Commercially, Zaki explained that the dollar hike led to skyrocketing prices of imported goods which is not in favor of the importers themselves, because customers tend to minimize purchases amid price hikes.
“The market is idle now due to the Muslim holy month of Ramadan as everyone, whether customers or importers, have already got what they needed. We will see how the market will be like after Ramadan,” the economist said.
He told Xinhua that the recent slight rise in CBE foreign currency reserves to exceed 17.5 billion dollars made a little difference, hoping for another rise soon to cool down the dollar market and the rising prices.