Russian wheat was among the first items to be traded on the newly launched Egyptian Mercantile Exchange of the Egyptian Commodities Exchange (EGYCOMEX), a proposed commodities exchange in Egypt.
Egypt’s Ministry of Supply and Internal Trade announced Nov. 28 the start of listing Russian wheat on EGYCOMEX.
The ministry offered 12,000 tons of Russian wheat for sale to the private sector at a price of 9,750 Egyptian pounds ($396) per ton. Some 18 purchases have already been carried out.
The ministry confirmed in a statement that requests to buy wheat from EGYCOMEX amounted to 28 orders for about 20,000 tons of wheat.
In September, Egypt’s Central Bank added the Russian ruble to the list of currencies used by Egyptian banks in an effort to boost Russian tourism in Egypt, according to a Central Bank official who previously spoke to Al-Monitor on condition of anonymity.
In April, Russian Central Bank Gov. Elvira Nabiullina announced that 52 institutions from 12 countries are taking part in Russia’s own system for financial payments as an alternative to the global SWIFT mechanism, following European Union and US sanctions on Moscow.
Speaking to the State Duma (parliament) back then, Nabiullina did not disclose the names of the involved nations in light of the current conditions.
In 2014, Russia had launched its own local banking system called “SPFS” to serve as an alternative to SWIFT after the first wave of Western sanctions following its invasion of the Crimean Peninsula.
Egypt has strong and extended relations with Russia spanning over 70 years, according to the Egyptian State Information Service that is affiliated with the Egyptian presidency.
A government source close to the economic decision-making circles in Egypt told Al-Monitor on condition of anonymity, “The ongoing Russian-Ukrainian war and its impact on the global system — notably the financial system — along with the economic sanctions imposed on Russia — which is increasingly seeing its most prominent banks being removed from the SWIFT payment system — have prompted Moscow to seek an alternative mechanism to cash payments.”
“Russia had already begun to prepare for an alternative since 2014, after its annexation of Crimea and the US threat to exclude Moscow from the global SWIFT system,” the source said, stressing that removing Russia from the SWIFT system is a severe economic blow to the country.
The source noted, “[But] the European Union has excluded seven Russian banks only from the SWIFT system.”
However, if more banks are excluded, this measure will not have an adverse effect on Moscow alone, but also on several European countries, most notably Germany and the Netherlands, which sustain economic relations with Moscow, the source continued.
He added that some Egyptian private and governmental companies have been secretly dealing with Russia’s alternative financial system for fear of having to face international US sanctions.
“Egyptian and Russian officials and diplomats had previously coordinated under the new mechanism,” the source explained. But because of the US and Western sanctions, these coordination efforts were not publicly announced and remained limited to the level of local institutions and companies.”
He said that Egypt’s request for a loan from the International Monetary Fund appears to have postponed Cairo’s official participation in this alternative system for fear of getting on the wrong side of the United States, which could hinder the loan approval.
“There are only some Egyptian companies that are using the new financial mechanism,” the source explained, noting that removing Russian banks from SWIFT has also harmed European countries because Russia is considered one of the largest buyers of European goods and is one of the main gas and oil exporters to Europe.
“The first country to be removed from the SWIFT system was Iran in 2012, when some companies and individuals associated with the Iranian regime were banned because of Tehran's nuclear program,” the source said.
He stressed that Russia is seeking to expand the inclusion of other countries in its alternative financial system, in a bid to incorporate China, Turkey, Iran, Kazakhstan, Kyrgyzstan, Armenia and Belarus.
Abdel Khalek Farouk, an economist and director of the Nile Center for Economic and Strategic Studies, told Al-Monitor, “Egyptian institutions are willing to take part in the [alternative Russian financial] system because they believe it can protect them from the effects of the [potential] dollar collapse or the possibility of market fluctuations in the near future.”
He said, “The United States and Europe have been tightening the noose around Russia’s neck, while the US Federal Reserve has raised interest rates, which caused an economic crisis in Egypt given the high price of the dollar against the Egyptian pound."
He explained, “This caused a sharp rise in prices domestically, as Egypt imports most of its needs from abroad in dollars. This is in addition to the high cost of external debt after the Egyptian pound fell against the dollar, which represents another challenge facing the Egyptian economy.”
Farouk pointed out that Egypt’s effort to join an alternative system for financial transactions reflects its support for Russia on the one hand and its connection with Moscow in several areas.
“This is not to mention that Egypt imports wheat and grains from Moscow, among other commodities. In addition, by having some of its companies using the alternative financial system, Egypt is getting a foot in the door in case of violent shocks in the US economy,” he said.
Farouk stressed, “But going all in and making the alternative Russian system official in the country is still far-fetched for the moment.”
He said that removing Russia from the entire SWIFT system would harm the US dollar, as reserves in the central banks of most countries are denominated in US dollars as opposed to the national currency.
“This could lead to a shake-up of the global system and the tendency of countries to shift to other financial systems or reserves such as gold,” Farouk explained.
This has already happened, he said. In May, Egypt bought 44 tons of gold.
Meanwhile, some other countries — chiefly China and Russia — have been resorting to cryptocurrencies as a financial alternative, according to Farouk
He concluded, “The Russian alternative financial payment mechanism needs continuous support, adjustment and streamlining, should Russia want it to become a globally recognized and used system."