Egypt and China sign currency swap deal

08/12/2016 07:29 AST

The Egyptian and Chinese central banks on Tuesday signed an 18-billion-yuan ($2.6-billion) currency swap agreement which would ease pressure on Cairo’s foreign reserves, Egypt’s central bank said.

Under the deal, Egypt can use the yuan in transactions with China which can use the Egyptian pound in return transactions, Hany Farahat, senior economist at investment bank CI Capital, told AFP.

“It’s as if you have limited transactions between the two countries to the two local currencies, so there is no need to resort to any other foreign currency in bilateral dealings between Egypt and China,” Farahat said.

The agreement is for an initial three years but can be extended by mutual consent, Egypt’s central bank said in a statement on its website.

On November 11, the International Monetary Fund approved a $12-billion loan for Egypt, just over a week after Cairo floated its currency as part of an economic reform package linked to the loan.

The Egyptian pound, which had been pegged at 8.83 to the dollar, has since been trading at banks for as high as 18 pounds per dollar.

The IMF approval came after Cairo took crucial steps to meet its loan requirements, including slashing fuel subsidies, announcing a value added tax, and floating the pound.

“The effect will be positive because it will translate into higher liquidity at the central back in the equivalent amount, plus that it will have an indirect impact on reducing demand for US dollars,” Farahat said of the deal with China.

Egypt has an ambitious three-year reform plan that, with foreign help, can revive its struggling economy, the minister of international cooperation told AFP.

In an interview, Sahar Nasr said the “three-year strategy” will lead to a return of investments, boost industrial production and create jobs.

It comes as Egypt faces not only falling growth and a currency crisis following years of political turmoil, but also increasing public discontent over rising prices.

The Gulf Today