Guest post by Nadine Marroushi, a business journalist in Egypt.
Questions are being asked over whether there will be a devaluation of the Egyptian pound. How much has the country’s central bank really spent to keep the pound stable? Will there be another wave of dollarisation prompting investors to hastily swap their pounds for US dollars?
Meagre increases in reserves in May and June offered some temporary relief. But last week as the latest data showed reserves fell to just $14.42 billion from $36 billion at the end of 2010, this served “as a reminder that devaluation of the pound remains a real and likely prospect,” Capital Economics said in an 8th August statement.
The reserves pot is now not enough to cover three months worth of imports.
The Central Bank of Egypt (CBE) has remained tight-lipped throughout, though in rare occasions has admitted it has interfered to stabilise the currency.[caption id="attachment_276" align="alignright" width="150"] CBE governor Farouk El-Okdah has been criticised for his lack of transparency[/caption]
It is also understood from Cairo-based currency traders that the CBE has a tight grip on fluctuations in the currency through transactions it makes via two main banks – Arab African International Bank and Suez Canal Bank.
This isn’t unlike the secrecy that characterises many central banks around the world, but it is less transparent than most, even among emerging economies.
“Many central banks publish the minutes of their committee meetings, like that of the Monetary Policy Committee, but you don’t get that in Egypt. Apart from statements after every meeting, we don’t know exactly what their targets are,” Said Hirsh, an economist at Capital Economics, told me.
An army tank stands outside the CBE guarding its doors. Requests for interviews are often met with a shake of the head in the negative.
Given that the CBE controls vital aspects of the economy and its workings such as foreign currency reserves, inflation and the currency, its silence is discomforting.
In a rare interview in September 2011, the CBE’s governor Farouk El-Okdah told me that the bank intervened only once during the revolution to prevent the pound’s depreciation. He said he has only given one television interview during his 8-years as CBE governor.
That was last February, in the early days of the revolution, reassuring the public that their money was guaranteed, after a two week bank closure.
In one sense, the bank’s reticence is wise. It hasn’t dragged itself into the kind of wide-spread criticism and calls for reform that other state institutions in Egypt have faced. Protesters haven’t stood outside the CBE building, yet.
In contrast, central banks around the world have been criticised for their handling of the economy in the wake of the 2008 global financial crisis. The Bank of England’s governor Mervyn King has also been looked upon suspiciously for being authoritarian and too political, putting the bank’s independence and democratic credentials at risk.
Nevertheless, these central banks communicate and play the game – speaking when necessary and refraining when not.
“Central banks in Europe and the US do not have a choice – the markets are extremely powerful and they can’t be non-transparent … [In Egypt] if foreign investors are to return, they will want to know how the bank comes to its decisions. The governor will have to come out more and speak to the public,” Hirsh said.
The question is when will foreign investors return? And if or when they do, will the CBE lead the way on transparency and accountability and play along?