The pound and the ruble

Newspaper Title: english.ahram.org.eg

Newspaper Number:

Tuesday - 24 January 2023

On 18 January, Russia’s central bank announced that nine currencies — the Egyptian pound, Emirati dirham, Thai baht, Indonesian rupiah, Vietnamese dong, Serbian dinar, New Zealand dollar, Georgian lari, and Qatari riyal — would be added to the list of foreign currencies officially set against the ruble.

Moscow-based Sputnik News agency said the total number of currencies now listed by the Russian central bank against the ruble stands at 43.

The Russian decision was welcomed in Egyptian economic circles. Analysts agreed that it will make it easier to import goods from Russia without putting pressure on Egypt’s US dollar reserves.

Fakhri Al-Fiqi, head of the House of Representatives’ Budget Committee, told Al-Ahram on 21 January that Russia’s decision to consider the Egyptian pound as a currency of trade “is the result of long negotiations between Russia’s central bank and the Central Bank of Egypt (CIB)”. 

“For Russia it comes within the context of efforts to overcome obstacles created by Western sanctions due to the war in Ukraine, and for Egypt it means relieving some of the pressure on US dollars.”

Since the war began in February 2022, Russia has increasingly faced Western sanctions. In response, Moscow has moved to reduce trade in US dollars and the euro and reach agreements with central banks in African, Asian and Latin American nations to settle accounts in national currencies.

“In Egypt, government officials have said repeatedly that they plan to reduce demand on the dollar by settling trade deals with countries like Russia and China in local currencies,” said Al-Fiqi.

Russia’s Foreign Minister Sergei Lavrov said on 18 January that “the bank of Russia has been pursuing a policy of de-dollarisation in foreign trade in the face of Western sanctions and threats and that Russia and some of its trade partners, including India, China, Turkey and Egypt, have been ramping up the use of domestic currencies in mutual settlements in an effort to move away from the US dollar and euro.”

On 19 January, Russia Briefing reported that “the Bank of Russia has begun officially quoting two African currency exchange rates against the ruble, the South African rand and the Egyptian pound.”

The Russian Embassy in Cairo said the Egyptian pound had started trading on the Moscow Exchange on 18 January for 2.33 rubles. Matta Beshai, head of the Internal Trade Committee of the Importers Division at the Federation of Egyptian Chambers of Commerce, said in a TV interview on 19 January that the central bank of Russia’s decision means that Egypt can now import from Russia and pay according to the direct ruble/Egyptian pound exchange rate, and Russian tourists who come to Egypt can do the same. 

Trade between Moscow and Cairo is valued at $4.7 billion.

“Egypt comes under pressure to find US dollars to import wheat every year, but the new agreement means we will be able to pay in rubles,” said Beshai.

Russia’s Deputy Prime Minister Viktoria Abramchenko said on 23 January that Egypt is seriously considering selling wheat to Egypt in exchange for Russian rubles instead of US dollars. Turkey currently pays for Russian grain in rubles.

“Egypt is the largest trade partner for Russia in the area of food supplies and we are now putting in the mechanisms necessary to settle deals with Egypt, not only in the area of food supplies but in other sectors like tourism, in the same way we did with Turkey,” said Abramchenko.

“When the two sides decide to drop the dollar in their trade deals it will not only save dollars but push mutual trade to higher levels,” predicts Emad Qenawi, head of the Importers Division at the Cairo Chamber of Commerce.

Amr Al-Samadouni, secretary-general of the International Transportation and Logistics Services Division at the Cairo Chamber of Commerce, argued in a TV interview that Russia’s adoption of the Egyptian pound in trade exchanges could signal the end of the US dollar as the basic currency in food import deals. 

“Food imports from Russia cost between $2 billion-$3 billion a year. “To save this amount annually is a very positive development for Egypt,” said Al-Samadouni. “The inclusion of the Egyptian pound as a currency of trade means that Egyptian importers will now be able to open letters of credit in Egyptian pounds to release shipments from Russia.” 

Nora Ali, head of the House of Representative’s Tourism Committee, said the move could boost tourism by allowing Russians to visit Egypt without the need to pay in US dollars.

Ali also noted that Moscow is seeking to expand the number of countries that allow Russians to make payments overseas via Mir payment cards, first issued in 2014 after US-based Visa Inc and Mastercard halted operations in Russia.

“A number of countries have approved the use of Mir Cards, including Turkey, Cuba, South Korea, and as far as I understand Russia is currently working with the Central Bank of Egypt to approve the use of Mir bank cards in Egypt,” said Ali.

She urged the government to conclude similar agreements with other major trade partners, particularly China.

“Let’s call upon the Egyptian and Chinese central banks to agree on mechanisms that will allow for trade in their local currencies,” she said.