Egyptian pound slumps 15 percent on first free float trading
The Egyptian government decided to liberalize its exchange rate policy and allow the local pound currency to float freely, Prime Minister Atef Ebeid stated Tuesday, January 28, at an Economist conference in Cairo. On the first day of abandoning the ‘managed peg’ system, the pound plunged 15 percent, to match black market rates.
The Egyptian pound has been pegged to the dollar since 1991. The pound was set at 4.51 to the dollar since the last official devaluation of January 2002. Under the ‘managed peg' system, the CNE allowed the pound to trade in a band of three percent above and below the core rate. However, the official US dollar-Egyptian pound exchange rate was still artificially lower than black market rates, where the dollar traded as high as EP5.38.
“As of Wednesday, there will be a free market for foreign exchange,” stated Ebeid. Egypt’s 60 banks will be allowed to set their own exchange rates independently and play an active role in foreign currency trade, he added. Although a trade-weighted average would replace the official rate, the Central Bank of Egypt (CBE) will retain the right to monitor the market and step in without advance notice, Central Bank Governor Mahmoud Abu Al-Ayoun was quoted as saying.
The move is hoped to bolster the country's dwindling foreign exchange reserves and revitalize its sluggish economy by attracting foreign investments and enhancing the competitiveness of Egyptian exports. At the same time it is feared to spark inflation and social unrest. — (menareport.com)
© 2003 Mena Report (www.menareport.com)