If you have tried to exchange US dollars and Euros at any bank in Egypt, you will likely be met by an apologetic shrug and asked to come back another time.
As Egyptians flock to a parallel market to meet their needs – either to cover import costs, before travelling abroad or to protect against the depreciation of the pound, a new website, EshteriDollar.com (Arabic for “Buy Dollars”) is aiming to fill a gap left by the government and currency dealers. Aimed at anyone living in Egypt, the website invites individuals wishing to either buy or sell foreign currencies at a better price than the official or black market.
Egypt is struggling to slow a fall in the domestic currency, which at official rates has fallen about 10 percent against the dollar this year.
The Central Bank has tried to control the decline in the Egyptian pound by introducing weekly dollar auctions. But dollar supply remains scare, and the government is having to give priority to importers of essential goods (including for wheat and fuel), leaving other importers and individuals to meet their hard currency needs via the parallel market.
The currency’s value on the black market, meanwhile, is falling fast. Dealers and market participants say dollars are being offered at rates as low as 8 pounds. That is compared to 7.50 pounds just a few days ago. The official rate is 6.80 pounds to the dollar.
Rebel Economy spoke to the owner of EshteriDollar, an economist based in Egypt, who asked to remain anonymous:
EshtariDollar: We started the website in February of this year, it started to pick up in April, when the “real” price of the dollar started to spike in comparison to the official rates.
The only reason the website exists is because there is a deviation between the official and real dollar price. We hope that some day (the sooner the better) we can shut down the website, because we are no longer “needed”.
I don’t think the currency market in Egypt is free. A free market exists when the price is defined by the supply and demand. But in Egypt, there is an officially set price for the dollar, interfering in the price setting mechanism.
At the artificially low rates the demand for dollars is high, but there is no supply meaning we come to a standstill and no transactions take place. What market participants do in these situations is basically turn to an un-official market to be able to conduct their transactions. Who benefits from such a situation? Mainly, the black market dealers.
The black markets are not transparent and the dealers tend to be able to generate large profits from the BID/ASK spread (the spread is the difference between the price you can buy and sell at). This is where EshteriDollar comes in, we take the dealers out of the equation and allow buyers and sellers to get together without a middle man (we don’t charge any sort of commission).
If the idea of the website catches on I am sure it will lead firstly to higher transparency (because you have a vast amount of different offers you can choose from) and also to lower prices.
– How does EshteriDollar work? How can I get involved?
ED: It is pretty simple: If you need foreign currency or Egyptian pounds you go to the website and post your ad (under Offers) you can alternatively enter “The Market” and scan who is selling or wants to buy foreign currencies. You can contact the seller (or buyer) by phone or email and negotiate between yourselves.
EshteriDollar is not involved in any form in buying or selling currencies, we have simply put together a market place for people to meet and trade. We should also mention that we do not verify the ads, meaning users should be cautious when trading with large amounts of cash.
– What do you make of Egypt’s currency policy decisions in the last two years?
ED: I am in general a critic of central bank policies worldwide and I am a proponent of Friedrich A. Hayek’s view that the production of money should be denationalised. Central banks tend to neglect one important function of money, namely that money should be a store of value. Their continuous “money printing” increases the supply of money relative to goods, thus driving the prices up. This is the main reason for the existence of inflation. These actions impoverish the lower and middle classes. This is especially problematic in Egypt where wages are not adjusted according to inflation, end in loss of savings.
Egypt is now repeating history. We had a similar situation during the Asian crisis. Foreign Direct Investment suddenly and abruptly stopped, most countries had a “quasi-peg” to the dollar and depleted most of their central bank reserves in an effort to keep the exchange rate stable and in the end they were forced to devalue the currency massively, because they simply didn’t have enough dollars to hold the rate.
It took nearly two years and a depletion of more than 50% of the central bank’s assets to finally, move away from setting the dollar at a rate of around 6 pounds. Ideally, they should have stopped intervening a long while ago.
The current devaluation is a step in the right direction, because its bringing the Egyptian pound closer to its real rate. I do however think one should speed up this process, especially in the economic situation we are in. Imagine the blessing for the tourism or export industry if all our goods were 20-30% cheaper for foreigner importers and tourists? At the same time imports to Egypt would decrease, which would be good for the growing balance of trade deficit.
– What do you get out of this? Commission from the currency exchange?
ED: Nothing! Anyone can post free of charge on the website and we are not involved in the transaction in any form and therefore can’t (even if we wanted to) charge any sort of commission. The whole idea is more ideological than anything else.
For the sake of transparency I should mention that we have some ads on our website, which generate some negligible revenues that don’t cover hosting and other expenses.
– What makes your website different and better to, say, a normal currency exchange on the street or a black market dealer?
ED: Our goal is to cut out the black market dealer, by bringng together buyers and sellers directly. When you trade with a bank, currency exchange office or a black market dealer there is always a spread. This spread is typically higher in black markets than other markets, because the black market dealers are taking on a risk by acting illegally or having to pay off police officers (which has been reported in Egypt recently). By cutting out the middle man both buyers and sellers benefit.
Here is an example:
Someone sells their dollars to a black market dealer at rate of 7.5 Egyptian pounds. The dealer will then sell these dollars to a willing buyer for 8.0 pounds and pocket the difference of 0.5 pounds per dollar. If you cut out the dealer you can get a better price for both parties. The seller can sell his dollar for 7.75, getting 0.25 EGP more on the dollar than the official rate, and at the same time the buyer will get the dollars 0.25 pounds cheaper. In essence, a win for both parties.