UPDATE 1-Egypt starts currency auctions, says reserves critical

CAIRO, Dec 29 (Reuters) - Egypt's central bank introduced a

new auction system for buying and selling U.S. dollars to help

conserve foreign reserves, which it said had reached a critical

level.

Political turmoil over the last month has prompted a rush by

investors and ordinary citizens to switch their Egyptian pounds

into foreign currency on concerns the government might devalue

or bring in capital controls.

The central bank has spent more than $20 billion in foreign

reserves to support the pound since a popular uprising toppled

Hosni Mubarak in early 2011 as turmoil has chased away tourists

and foreign investors.

Reserves fell by $448 million in November to $15.04 billion,

enough to cover barely three months of imports, and bankers said

the rush to buy dollars was certain to have drained foreign

reserves even further in December. The bank is expected to

report December figures in the first week of January.

"The current level of foreign currency reserves represents

the minimum and critical limit," the bank said on its website on

Saturday.

"This requires their being conserved for critical uses, as

represented in fulfilling foreign debt obligations to preserve

Egypt's reputation in international financial markets and to

cover imports of strategic commodities," it added.

The new system will take affect as of Sunday, Dec. 30, and

run alongside and not affect the current interbank currency

market, the bank said.

It said the auctions would be held regularly and that banks

would be asked to submit bids but gave few other details.

Egypt said it would continue to meet instalments and

interest payments on its foreign debt and allow transfers by

foreigners who had invested on the stock exchange.

The central bank said the banking system's finances remained

"strong and secure" but called on Egyptians to "rationalise

their use" of foreign currency and not to speculate.

Most Popular in Business