01 The Hour
Morning
Thursday 3 November 2016. Cairo. Reconstructed to the day.
The announcement came in the morning and it was a surprise. Officials had said they would consider a float only once reserves reached 25 billion dollars. In September they had stood at 19.6 billion.
The pound went to 13 to the dollar, selling at 13.50. The official selling price until then had been 8.88 and the buying price 8.85. On the parallel market the dollar had touched 18 earlier that week.
In the same statement, the central bank abolished its list of priority imports.
02 The Sequence
To 31 Oct 2016 A parallel market had slowly flourished and the differential against the official rate reached close to 100 per cent by the end of October. Reserves had been spent propping up the pound through incremental devaluations well short of the rates offered outside the banks, which had made the unofficial market increasingly the only recourse for importers.
3 Nov 2016 The central bank announced its decision to move, with immediate effect, to a liberalised exchange rate regime, in order, in the words of the statement, to quell any distortions in the domestic foreign currency market.
3 Nov 2016 The mechanics in the same announcement. A non-binding rate set to serve as soft guidance to jumpstart the market. Banks at liberty to quote and trade at any exchange rate, with the central bank using the prevailing market rate for its own transactions. Multiple auctions to support the process of price formation. Banks permitted to operate until nine in the evening every day to conduct foreign exchange transactions.
3 Nov 2016 The list of priority imports was abolished. The policy rate was raised by 300 basis points the same day.
3 Nov 2016 The boards began to move apart within hours. One commercial bank put the dollar at 13.25 to buy and 14.30 to sell, and the euro at 14.661 and 15.913. By mid afternoon several banks were quoting the dollar between 13.50 and 14 pounds.
Nov 2016 The currency remained volatile in the following weeks, with trades recorded between 15 and 18 pounds to the dollar, against the former official rate of 8.88. The float was part of a programme undertaken while the country sought a 12 billion dollar loan from the Fund.
28 Dec 2016 Companies unable to repay dollar denominated debts were to be allowed to negotiate fixed exchange rates with their banks. The pound had lost more than half its value since 3 November.
03 The Hidden Dependency
Of the measures announced that morning, the float is the one everyone remembers. The one that changed the working day of an importer is in the same paragraph.
While the official dollar cost 8.88 and the one outside the banks cost close to twice that, somebody had to decide which goods were entitled to the cheap one. The instrument for that decision was a list of priority imports, and behind the list was a queue.
The list went the same morning as the rate. A priority list has work to do only while there is a price worth queueing for, and the announcement that removed the gap removed the queue in the same breath.
A priority list has work to do only while there is a price worth queueing for.
04 What Still Worked
The Evening Counter
Banks were allowed to operate until nine in the evening, every day, to conduct foreign exchange transactions. The counter that had been rationing a currency was given longer opening hours to sell it.
The Soft Guidance
A non-binding rate was published to jumpstart the market, with the banks free to quote and trade away from it and the central bank using the prevailing market rate for its own business. Within hours the boards showed how far apart they would go.
The Negotiated Rate
From the end of December, a company that could not repay a dollar debt was allowed to agree a fixed rate with its bank. One more price, written for one more purpose, eight weeks after the prices had been freed.
05 Contested
Contested 3 November 2016
What a dollar cost in Cairo that Thursday depends on which line of which report is being read.
The pound was floated to 13 per dollar, with selling at 13.50. One commercial bank posted 13.25 and 14.30. An agency reporting in the afternoon found several banks between 13.50 and 14. A market report filed the same day still carried the pound at 8.896. All four are correct for a different counter, a different hour, or a different side of the spread, and the record does not reconcile them into one price.
06 The Pattern Library
1 When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019, Worldpay 2026, TSB 2018, Afghanistan 2021, Nigeria 2023.
2 A currency replacement can require physical work on every unit of the estate before the new money can circulate, whether a modification to each cash dispensing machine or a stamp affixed to each note, so the changeover proceeds piece by piece rather than all at once.
Observed: India 2016, Czechoslovakia 1993.
3 Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4 Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008, Germany 1931.
5 When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6 A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7 Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8 A cash withdrawal ceiling is paid only in the denominations the machine is permitted to hold, so a ceiling and a denomination rule set together decide how many notes a withdrawal is, and a ceiling has to be raised alongside the denominations that pay it when the existing notes no longer carry it.
Observed: Zimbabwe 2008, Nigeria 2023, Venezuela 2018.
9 A payment outage can hit card authorisation and merchant funding as separate faults, so acceptance at the terminal is restored while the money owed to the merchant arrives a day late under its own incident notice.
Observed: Worldpay 2026.
10 A retailer that loses electricity can go on trading by taking cash and rationing goods by hand, so the counter outlasts the checkout system that normally prices and settles the basket.
Observed: Texas 2021.