Egypt restricts cash circulation: opportunity for bitcoin?
Egypt limits cash withdrawals and deposits. In doing so, the government hopes to curb the corona virus on the one hand – and prepare Egypt for a post-cash era on the other. This global trend toward cash abolition makes Bitcoin more important than ever. In Egypt, there is a growing demand for the digital currency and different services like bitcoin loans – but at a rather low level.
Sometimes it feels like “Corona” is the excuse for everything at the moment. That’s not to downplay Corona. But the virus justifies many actions that would be difficult to imagine under other circumstances. For example, it is currently normal to “have economic crisis.” What is usually blamed on the government’s incompetence is now virtually proof that it is doing the right thing, since it is impossible to contain Corona without it being detrimental to the economy. Of course, if the government subsequently imposes harsh measures to save the economy, that is also appropriate.
Corona also justifies harsh measures in Egypt. The central bank has imposed nationwide limits on cash withdrawals and deposits. The limits are now 10,000 Egyptian pounds (580 euros) for individuals and 50,000 Egyptian pounds for businesses. At ATMs, the limit is only 5,000 pounds (290 euros).
Test for a cashless Egypt
The central bank justifies the measure by saying that it is trying to prevent crowding in banks and at ATMs where people withdraw their salaries and pensions. The reason is, of course, the Corona virus, although according to official data, this is rather weakly spread in Egypt. At the same time, the central bank is calling on the population to increase the use of electronic payment methods. To this end, all fees for bank transfers and other electronic payments will be suspended, at least temporarily.
According to Tarek Amer, governor of the central bank, cash withdrawals have increased in recent weeks. Some 30 billion pounds (1.74 billion euros) have been withdrawn, he said, as many in the population worry that cash will run out in the wake of the pandemic. To be sure, the governor of the central bank assures that there are no cash shortages in Egypt. But Corona-related curfews and shorter working hours at banks have made it difficult to move enough cash from the central bank to local banks.
In Egypt, cash plays a major role in economic life. Many industries, both in the more rural areas and in the informal sector, rely largely on cash. The Poultry Producers Association, for example, warns that cash restrictions would hit the industry hard, as cash is used to pay across the supply chain here, from farm to fork.
This is precisely what is set to change in the future. While the cash restrictions are prompted by the Corona virus – they have a goal far beyond that. Analysts are already hoping that the restrictions will become a test run for freeing society from its dependence on cash and driving payments to electronic channels. This, they say, is also a fundamental part of the government’s strategy for financial inclusion of segments of the population that have not yet had access to banking. However, it is also clear that this is difficult for many stakeholders – from farmers to veterinarians – and requires them to prepare for a long time. The path is clear, though, and thanks to Corona, the government can now test how the country can get along without cash.
Bitcoin as a shield
Of course, electronic payment methods have many advantages over cash. However, they usually also override some important characteristics of cash: they are usually tied to personal identities and allow full financial monitoring of the parties involved. Transactions are also not immediate. The owner of the money merely instructs a bank to execute the transfer. Should the bank balk – or be unable to – the owner cannot access his money.
Finally, cash limits the government’s ability to act in terms of monetary policy, for example, if it wants to use negative interest rates but the population protests against this by withdrawing their money from the bank. In general, the bank run hovers over banks and the government like a constantly threatening sword, which is at least an obstacle to reducing the banks’ capital reserves too far.
As Norbert Häring has vividly described in his book, the campaign for financial inclusion of the poorer classes is accompanied by a campaign for digital identification and surveillance of the population. In much of the world, American tech and financial corporations are working with the government to link the “bank account for everyone” with a “database on everyone” that will allow the population to be monitored in ways previously unimaginable.
As real cash disappears, a digital cash corrective is more important than ever. With Bitcoin (or other cryptocurrencies), citizens can pay electronically without giving up their privacy, without becoming dependent on banks, and without giving the government a free pass on monetary experimentation. The global abolition of cash is progressing every month, slowly but steadily, and it is not yet clear which way it is going. However, it is becoming increasingly clear that a digital cash is becoming more and more necessary.
Bitcoin in Egypt
In Egypt, however, there is only a very weakly established Bitcoin economy. Real exchanges are not known, just as no exchange allows Bitcoin to be traded against Egyptian Pounds. Therefore, trading channels tend to be informal, such as through LocalBitcoins or Paxful, where there are offers to buy Bitcoins in Egypt against bank transfers, cash, or other methods, such as iTunes cards.
Trading volume on LocalBitcoins in Egypt – shown here in Bitcoin – has been steadily increasing since the beginning of 2018. What is remarkable here is that there was apparently no hype in Egypt at the end of 2017/18, as was the case almost everywhere in the world, but demand is growing steadily. However, this remains at a relatively low level with a volume of 5-10 Bitcoins per week. A similar pattern can be seen in the interest in Bitcoin via Google.
Since May 2018, the number of searches for Bitcoin has been steadily increasing. Of course, it is difficult to say if and what this trend means. But at least with the trading volume on LocalBitcoins and the search queries on Google, we have two values that we can look at again in the future to see if the trend continues.