“The concern and the warning did not emerge because we disregarded the cryptocurrency. On the contrary, we are following it, and we are onboarding very young talents at the central bank to understand these kinds of technologies and how we would best address them,” Aboul Naga said in reference to cryptocurrency and blockchain.
Aboul Naga further explained that these warnings are based on the fact that crypto is associated with high risk and that many investors are seemingly not aware of capital risk exposures, pointing to how cryptocurrencies are not backed by any tangible assets or issued by central banks or official central authorities, alongside the anonymity of its users.
“We are not, in any way, against using the technology itself. We have just learned that some trends can be destructive and could lead to significant economic losses to users, who might not be fully aware of what they get themselves in.”
Furthermore, the deputy governor emphasised that the CBE embraces all technological trends but it holds the responsibility of raising more awareness about it as a regulator.
“We have to be very cautious and deliberate about everything we do and say. In developed central banks, a word can really change and swing markets across the board. That is the same as in our case.”
Asked whether Egypt will witness another currency devaluation soon, Aboul Naga remarked that since the Egyptian pound's (EGP) exchange rate was liberalised in 2016 and a monetary policy framework was set, the currency movement does not have any restrictions.
“No one knows what will happen with the currency level, as it depends on demand and supply dynamics. At the central bank, we are not concerned about the currency levels. We're concerned about the availability of liquidity in foreign currency.”
The deputy governor confirmed that Egypt has a lot of ammunition, as the US dollar (USD) liquidity probably recorded its highest level in history, and over $40 billion in reserves are being held by the central bank.
In the meantime, the Egyptian economy has addressed the coronavirus (COVID-19) impacts because of the very fine balance that the government and the central bank managed to achieve in this period, he added.
The tourism sector, a major source of foreign exchange for Egypt, has been negatively affected by the COVID-19 pandemic, due to travel restrictions and lockdowns across the world, however, Aboul Naga said that Egyptian expat remittances have increased by $3 billion in one year, which has partly offset the decline in tourism.
“We are in a much stronger position today with the reserves we have at the banking system, the ample liquidity that we are sitting on, as well as our own foreign reserves. So, we are far from the situation we were in 2016.”
He explained that in 2020 when many speculated the pound's depreciation and began to hold the dollar, the complete opposite happened, as the Egyptian pound strengthened against the dollar and those who were holding dollars endured a lot of capital losses.
Aboul Naga reiterated that many people have lost capital by keeping dollars over the past four or five years, given that the return on USD is almost non-existent with the 50 basis points or less.
“For someone who has been investing in the Egyptian pound over the past few years with a positive rebate when the policy rates or the interest rates offered to investors or depositors are superior to the inflation rate, makes higher returns on a medium and long term as opposed to holding dollars.”
It is worth noting that Egypt currently offers the highest real interest rate in the world.