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Floating the pound.. Banks start opening letters of credit at the price of the dollar

02:59 PM

Thursday 27 October 2022

I wrote – Manal Al-Masry:

Today, Thursday, banks began financing documentary credits at the free dollar exchange rate, after the Central Bank’s decision today to completely liberalize the exchange rate, according to sources who spoke to “Masrawy.”

Banks will procure dollars for the new documentary credits, according to the rate circulating in the interbank market – an open market between banks and the central bank for buying and selling dollars.

The sources said that the banks are working to buy the dollar from the (Interbank) to finance the documentary credits at the free rate, that is, after the full flotation of the pound exchange rate against the dollar after the Central Bank’s announcement.

The pound’s exchange rate fell today against the dollar, to the level of 23 pounds for sale in some banks, with an increase in the dollar’s ​​price of 3 pounds and 25 piasters compared to yesterday’s transactions.

Hassan Abdullah, the governor of the Central Bank, said during a press conference today, Thursday, that the central bank decided to “liberate the price of the pound against the dollar according to supply and demand,” and announced that it had reached an agreement with the International Monetary Fund on a financing program with a total value of $9 billion.

The Central Bank announced that it will gradually cancel the work of documentary credits, until it is finally canceled at the end of next December.

Over the past 6 months, a number of importers and manufacturers have complained about the suspension of their business due to the inability of the banks to obtain dollars to finance their goods and their exit from the ports.

The sources pointed out that the dollar price ceiling at which banks open credits will be determined according to the volume of requests submitted by importers and the dollar supply until traders stop buying dollars at a certain number due to the market’s inability to absorb these prices.

Today, the Central Bank issued a package of exceptional decisions that included raising the interest rate by 2%, canceling documentary credits completely next December, and setting the exchange rate of the pound according to supply and demand with a flexible exchange system.

The Central Bank also announced today financial derivatives tools to hedge against the exchange rate risks against the pound.

It coincided with the Central Bank’s decision to issue a triple savings certificate by Al-Ahly Bank and Egypt, at an annual interest rate of 17.25%.

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