With its economy hurting badly, Egypt’s government has slashed the value of its own currency in an attempt to make the country more competitive and ensure access to foreign cash. The Wall Street Journal reports:
The Central Bank of Egypt on Monday sold almost $200 million in an interbank auction at 8.85 Egyptian pounds per dollar, compared with the previous rate of 7.73 that it maintained for nearly five months. The move will help narrow the gap between the pound’s exchange rate of about 9.6 to the dollar last week in the black market. This was the central bank’s second such auction within a week.
A more flexible policy will “fix the distortions in the exchange rate system and restore the regular and sustainable flow of hard currency in the banking system,” the central bank said in a statement.
Egypt is grappling with a short supply of dollars that is strangling businesses and restricting the country’s capacity to import essential goods such as pharmaceuticals, wheat and fuel.
Tourism and foreign investments, key sources of hard currency for the import-dependent economy, have yet to pick up after the uprising in 2011 due to political unrest. A string of recent terror attacks has further weighed on sentiment. Egypt’s foreign reserves have fallen by more than half since early 2011 to about $16.5 billion at the end of February.
The move accompanied recent reforms that allow businesses better access to hard cash, and make it easier to deposit foreign reserves in Egyptian banks. Egypt’s stock market rallied on the news.
As we wrote last week, the Egyptian economy is in real trouble—to the point where, if current downward trends continue, it could be a real threat to the government’s stability and regional peace. So this kind of initiative is welcome news.
The government seems to be avoiding further erosion in reserves. That’s commendable, all things considered. Egypt has a lot of problems, but there are some smart technocrats in the system, and the military government, whatever its other failings, seems to be listening to them at least some of the time. The foreign exchanges reserves aren’t in free fall and the poor aren’t exploding in food riots. For now, that counts as good news out of Egypt.