x Abu Dhabi, UAEFriday 19 January 2018

A primitive form of quantitative easing

Frank Kane discusses plans to kickstart a troubled economy as Egyptian pounds are disbursed through an apprehensive country via military cargo planes and trucks.

Egyptian pounds are disbursed through an apprehensive country via military cargo planes and trucks, to bank tellers desperately short of any currency, and then with luck to bank customers who have been unable to make withdrawals for more than a week. This is quantitative easing at its most primitive.

The scenes in Cairo and other strife-torn Egyptian cities yesterday, as banks opened for the first time since the anti-Mubarak protests became serious at the end of last month, were graphic illustrations of what happens when the worlds of finance and politics collide.

Before anybody is tempted to belittle the efforts of the Egyptian central bank, it is worth remembering that, at the height of the financial crisis in 2008, some western banks thought they were within a few days of a similar scenario - tellers without bills, ATMs displaying the message: "Sorry, we are unable to dispense cash."

The 5 billion Egyptian pounds (Dh3.13bn) injected into the country's fragile financial system yesterday looks insignificant compared with the hundreds of billions of dollars the US has poured into its economy since the economic crisis.

Indeed, it looks paltry even in relation to the estimated US$36 billion (Dh132.22bn) Egypt has in reserves and deposits. But it was essential to keep the economy functioning at the minimum level.

The total collapse of the banking system would have severely exacerbated the already acute political crisis.

Throwing money at a problem is never, on its own, a guarantee it will be resolved. But long-term stability surely depends on a vastly bigger and more focused programme of strategic economic investment, with the help of Egypt's international friends.