Egypt's central bank floats pound against US dollar, spurring a currency crisis

The Central Bank of Egypt on Thursday implemented an exchange rate flexibility, allowing the value of the Egyptian pound to be regulated by market forces in a bid to save an already ailing economy. 

Following the controversial decision, the Egyptian pound dropped in value against the US dollar by 12%, following a 15% spike in the inflation rate, the highest in four years amid growing economic hardships, and the second floating in 2022.

"We don't have flexibility. There are no dollars at banks. Whoever asks to exchange Egyptian pounds with dollars will not find any. So there is no supply and demand," professor of economics Ehab El-Deskouky told The New Arab.

Meanwhile, the Central Bank's Monetary Policy Committee said in a statement that it had raised the new lending interest rate to 14.25% and the deposit rate to 13.25%.

"Today's measures simply mean that the Egyptian pound has been highly devaluated against the US dollar, and in order to protect its value, the government raised the bank interest rates so that people are encouraged to save their money at banks in the local currency," said Deskouky, who is also head of economics department at Sadat Academy for Management Sciences.

When contacted by TNA, a number of owners of currency exchange offices said they have no dollars left in their safes.

"Once the central bank declared its decision this morning, several clients visited me and asked for dollars but I didn’t have any due to an ongoing monetary crisis we have been facing since the earlier devaluation this year,” a currency exchange shop owner said to TNA.

"I think they hid whatever they have, waiting for the dollar price to stabilise," one customer at the exchange shop said.

$3 billion is lowest estimate for an IMF loan that was circulating in past few months

$3 billion over 46 months for a $400 billion economy is tiny

It shows IMF's limited confidence in Egypt's committment to reform & without reform this money will quickly be wasted as before 🧵 https://t.co/5Nmqzi3L6t

— Timothy E Kaldas (@tekaldas) October 27, 2022

An informal currency market trader told TNA, on condition of anonymity, that "it is likely that people will keep hold of the dollars they have for a while and won’t exchange waiting for a higher value."

"A dollar is more valuable than gold as of today," he said.

"I can't even find dollars in the black market, and I'm due to travel Saturday morning," an engineer travelling on a business trip, told TNA at one of the banks in Cairo. 

The US dollar's value jumped from 19.75 Egyptian pounds to a dollar to at least 22.85 pounds per dollar based on data provided by the country's leading bank, the National Bank of Egypt, while the official website of the central bank was down most of the business day.

It remains unclear whether the website was hacked or received high traffic that led to its malfunction.

RIP Egyptian pound#الدولار pic.twitter.com/bJogArwFbb

— Abo Bakr Uwk🏹 (@officiAboBakr) October 27, 2022

Deskouky believes the decision will cause the people's quality of life to be negatively influenced.

"Egypt is a country that depends on importation. Hence, the prices of all consumer goods will get higher at the time when people’s income is still the same depending on a devalued currency," he explained.

Egypt is also the world's largest wheat importer, most of which came from Russia and Ukraine. The country's supply is subject to price changes in the international market.

The government has reached a deal, also on Thursday, after long negotiations with the International Monetary Fund for a new $US3 billion loan to support its 'reform' program.

The Egyptian economy has been hit hard by the Covid-19 pandemic and the recent Ukrainian-Russian war, events that also disrupted global markets and hiked oil and food prices worldwide.  

This is at the core of the problem at what was called “reform” free floating of the Egyptian pound was always a joke in 2016 and in 2003 and in 1992. Seems that international institutions have a really short memory about it to believe this BS. https://t.co/PwLToYEgVX

— Tarik Salama (@tariksalama) August 22, 2022