Egypt, China Sign $2.6B Currency Swap Boosting Pound Flotation

Egypt and China signed a currency-swap deal for about $2.6 billion, allowing the North African nation to shore up foreign reserves after floating its currency last month.

The countries’ central banks signed the 3-year swap agreement for 18 billion yuan against the equivalent in Egyptian pounds. The transaction can be extended, the Chinese regulator said.

The swap “complements a series of measures taken which aim to unleash the vast potential of the Egyptian economy and instill confidence by bolstering economic activity,” Egypt’s central bank said in a statement.

Propping up Egypt’s reserves is a major aim of the government, which floated the pound last month to end a crippling foreign currency crisis. Having fallen to about half their value in the years after the 2011 ouster of longtime ruler Hosni Mubarak, reserves reached their highest level in more than five years in November.

“Larger reserves mean stronger firepower on part of the central bank, which should boost confidence in the pound and support the flotation process,” said Hany Farahat, senior economist at Cairo-based investment bank CI Capital. “With this deal, it becomes very likely that the central bank will be able to meet its $25 billion reserve target by year-end.”

The Egyptian pound strengthened 0.7 percent this week, trading at 17.55 per dollar at 11:00 a.m. in Cairo according to data from National Bank of Egypt. It had lost about 50 percent of its value following the Nov. 3 flotation.

The swap is part of the bilateral support Egypt secured to conclude a $12 billion International Monetary Fund loan deal last month.

(Updates with analyst comment in fifth paragraph, reserves chart. An earlier version of this story incorrectly stated the value of the deal in U.S. dollars.)
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