The Trials of the Egyptian Pound

Source: Carnegie Endowment
Author(s): Brendan Meighan

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Egypt agreed with the International Monetary Fund on November 11, 2016 for a $12 billion loan in exchange for a series of economic reforms. These have already fundamentally transformed the Egyptian economy, particularly and most recognizably, depreciating the Egyptian pound against the U.S. dollar. The reforms package won praise at home and abroad for its foreign exchange market liberalization. Yet this move, which allows the price of the Egyptian pound to be determined by market forces instead of the Central Bank of Egypt (CBE), resulted in the pound-to-dollar exchange rate falling from EGP 8.88 to the dollar in early November to more than EGP 19.50 by late December.

While the pound has recovered slightly, currently standing at about EGP 18.45 to the dollar, the average Egyptian lost over half of their savings and had their monthly income cut substantially. Given Egypt’s dependence on imports, the devaluation of the pound in dollar terms also drove up the already troublingly high rate of inflation, with year-on-year core consumer price index (CPI) inflation hitting 20.73 percent in November 2016 and 25.86 percent in December…

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