Egypt moves closer to a freely floating pound – good news

Yesterday we got the news that the Egyptian central bank had devalued the pound and announced that the country is moving closer to a freely floating exchange rate.

This is from Bloomberg:

Egypt allowed the pound to weaken the most in 13 years as the North African nation became the latest emerging market to ease defense of its currency to conserve reserves and boost competitiveness.

The Central Bank of Egypt devalued the pound by almost 13 percent on Monday to 8.95 per dollar and said in a statement it would adopt a “more flexible exchange-rate” policy. The authority, which currently controls the currency at regular dollar sales, didn’t give details on what mechanism would be adopted. Egyptian stocks jumped the most since 2013 and Eurobonds rallied.

The move was an echo of January 2003, when Egypt let the pound tumble by 14 percent in a single day before allowing a further 13 percent depreciation through the end of the year. The currency will probably trade between 9 and 9.5 per dollar this year as the central bank closely manages its fluctuations, according to Hany Genena, the head of equities strategy at Cairo-based investment bank Beltone Financial.

This is yet another example the the ‘dollar bloc’ is gradually falling apart and countries around the world are moving away from pegging their currencies to the dollar and are moving towards more flexible exchange rate regimes. This in my view certainly is good news.

The big challenge for Egypt will now be what it should be doing next. It would certainly not be a good idea just to continue with a “new peg” to the dollar.

I hope to in the near future to write more on what could be a ‘good’ monetary regime for Egypt.




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