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The Egyptian Pound : A New Hope

After a catastrophic economic crisis and a devaluation of 48% to meet IMF demands back in 2016 (The guardian, 2016), The Egyptian pound seems to be recovering ground even amid a global health crisis like the COVID-19 pandemic.

A quick background story

In November 2016, the Egyptian Central bank announced the change of the Egyptian pound (EGP) from a strictly pegged currency to a free-floating exchange rate, this move, although devalued the currency by almost 50 percent, also created a new sense of trust in the EGP, attracting foreign investment, and traders buying the currency, which drove the value up. 

After the decision to let the exchange rate fluctuate freely, Egypt became a cheaper destination, both for tourists and business. This meant more foreign currency inflow into the Egyptian market, more economic activity, and, with time, the stabilization of the economy and subsequent growth of the economy. (PWC, 2017)

2020 and the pandemic

Source: Exchangerates.org.uk

After a steady recovery since 2017, thanks to the foreign investment and the trust the traders had in the Egyptian pound, the Coronavirus pandemic hit, and a relatively significant devaluation impacted the currency. According to experts, this depreciation is totally normal, considering the current global situation due to the spread of the pandemic.

Source: The Central Bank of Egypt (CBE) 2020

As per Central bank and Egypttoday, Egypt had $36 billion reserves by the end of May 2020. The current average of Egypt foreign reserves covers about 8 months of Egypt’s commodity imports, which is higher than the global average of about three months of commodity imports. Foreign currencies in Egypt’s foreign reserves include the U.S. dollar, euro, Chinese yuan, Japanese yen and Australian dollar.

Besides the unexpected drop in value due to COVID-19, The Egyptian Pound seems to be a success story, presenting a steady recovery since its times of a strictly fixed exchange rate. And it is expected to continue a healthy 2020, supported by the Egyptian Central Bank in its monetary policy, and controlling inflation rates. As per Asharq Al- Awsat (2020)Experts affirm that two significant boosters of the pound will be the positive impact of foreign investment, and the declining state dependence on imports, especially in the gas sector. 

 

 

Image: Squirrel_photos

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Sources

Al-Youm A. (2020) US Dollar to Egyptian Pound rate remain stable. Egypt Independent:https://egyptindependent.com/us-dollar-to-egyptian-pound-exchange-rate-continues-stable-prices/

Asharq Al- Awsat (2020) Experts: Egyptian pound to continue strong performance in 2020. Asharq Al- Awsat: https://english.aawsat.com/home/article/2063281/experts-egyptian-pound-continue-strong-performance-2020

Mounir H. (2020) Recent devaluation of Egyptian Pound against US Dollar normal, temporary banking pundit. ZAWYA: https://www.zawya.com/mena/en/markets/story/Recent_devaluation_of_Egyptian_pound_against_US_dollar_normal_temporary_banking_pundit-SNG_176357014/

PWC (2017) The EGP devaluation: a new beginning. PWC: https://www.pwc.com/m1/en/publications/the-egp-devaluation-a-new-beginning.html#:~:text=On%20the%20morning%20of%203,by%20the%20end%20of%20October.

www.cbe.org.eg/en/EconomicResearch/Publications/Pages/MonthlyStatisticaclBulletin.aspx

www.egypttoday.com/Article/3/88373/Egypt%E2%80%99s-foreign-reserves-record-36B-by-end-of-May