Dismayed by a creeping devaluation of the national currency, the head of the Egyptian central bank has a announced a tightening of the more liberal exchange rate policy that was introduced last May.
Speaking to journalists at a Cairo news conference, Ismail Hassan, the central bank governor, said that according to the new system, the Egyptian pound would first be pegged at 3.85 to the U.S. dollar, although traders would be allowed to trade pounds at prices falling within a 1 percent band on either side of the figure.
Hassan added that from now on, the central pound/dollar rate would be set periodically, according to a weighted average of all transactions in the market over the preceding weeks.
Before the liberalization of Egypt’s exchange rate policy in May 2000, the pound was set between 3.3 and 3.4 to the dollar for nine years. But, toward the end of that period, it was generally agreed that the local currency was overvalued by 10 to 12 percent. That would have set the real rate around 3.75 pounds to the dollar. However, when the pound was allowed to float, it devalued faster than expected, reaching a rate of 4.09 to the dollar earlier this month.
Asked at the same news conference whether the pound is still overvalued, Egypt’s Economy and Foreign Trade Minister Youssef Boutros-Ghali was somewhat vague, merely stating that the new foreign exchange rate system should enable the currency to hold steady for a while. But he rejected out of hand the possibility that a black market currency will arise. If the new system expresses market forces, he stated, a black market will not reemerge.
Boutros-Ghali said that, ultimately, the dollar benchmark will be dropped, and the pound will instead be pegged to a basket of currencies. For this to happen, he said, a judgement will first have to made that the international currency markets are stable. – (Albawaba-MEBG)
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