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Apparently Egypt uses a fixed exchange rate so there is a substantial difference between the government rate for the Egyptian pound and the price on the street. What prevents someone from just buying pounds on the street using dollars and then depositing the pounds in a bank and converting them back to dollars at the official rate, thus allowing the person to instantly make a large profit?

I assume that there is some mechanism to prevent this. Is there?

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    $\begingroup$ Usually parallel exchange rates only happen when banks refuse to provide foreign currency at the official rate except for approved uses, which excludes pure arbitrage. Typically this disrupts international trade. You can see articles about Egypt's position for example at pymnts.com/in-depth/2015/an-fx-crisis-in-egypt and reuters.com/article/us-egypt-currency-imports-idUSKCN0WA25Y $\endgroup$
    – Henry
    Nov 4, 2016 at 0:52
  • $\begingroup$ Usually what simply happens is that you can't just walk into a bank and demand to exchange the local currency into USD at the official rate. (You can probably do it the other way round, if you are foolish enough.) That's all there is to the mechanism. $\endgroup$
    – user18
    Nov 5, 2016 at 10:32
  • $\begingroup$ @Henry This is at least the fifth instance when you answer a question in a comment. If the question is good enough to answer, the answer is good enough to post. $\endgroup$
    – Giskard
    Nov 16, 2016 at 7:15
  • $\begingroup$ Though sadly Lassie has not accepted any answers in the last 12 months. $\endgroup$
    – Giskard
    Nov 16, 2016 at 7:16

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Used to be capital controls. You could only buy dollars (or any other foreign currency) through official channels at the official favorable rates by providing documentation displaying need for said currency (e.g. Travel or import documents).

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