The Central Bank of Egypt (CBE) said that printing and issuing cash is done in accordance to regulations and the bank’s full commitment to economic and legal measures.
The CBE’s statement comes in response to heavy criticism by research institutions, which accused the bank of printing a significant amount of banknotes to cover the state’s general budget deficit, despite lacking sufficient cover.
The CBE said that it did not issue any banknote without fully covering it. The bank added that it did not issue new cash to cover the budget deficit, saying that financing the budget deficit is usually done through treasury bills and bonds, which are issued by the government.
“In order to determine the amount of issued cash, the CBE commits to economic measures. The most important of these measures are the real growth rate of the gross domestic product (GDP), and the inflation rate. The amount of issued cash is in line with the needs of current economic activity, and does not stand in the way of maintaining the stability of the general level of prices, and consequently keeps the national currency from declining. These are considered the main goals of the monetary policy,” according to the CBE.
According to the most recent available statements of the CBE, the cash issued at the end of June 2015 is covered by gold worth EGP 18.95bn, treasury bonds worth EGP 166.936bn, foreign exchange worth EGP 33.161bn, and foreign sukuk worth EGP 96.593bn. Gold covered 5.8% of the cash, while treasury bonds covered 53%. Foreign exchange stood at 10.5%, and the remaining 30.7% were covered by foreign sukuk.
The CBE said that it is keen on making the annual growth of the issued banknotes proportionate to the average growth of the GDP, in accordance with common economic principles.
It added that it issues new banknotes to replace the damaged ones, with the aim of maintaining a good quality of the Egyptian currency. It added that this step does not lead to any increase in liquidity, since damaged banknotes are withdrawn and destroyed.