{"id":18737,"date":"2024-01-31T17:35:12","date_gmt":"2024-01-31T15:35:12","guid":{"rendered":"https:\/\/zawia3.com\/?p=18737"},"modified":"2026-10-09T03:23:17","modified_gmt":"2026-10-09T01:23:17","slug":"econ-6","status":"publish","type":"post","link":"https:\/\/zawia3.com\/en\/econ-6\/","title":{"rendered":"Is Flotation Not Near? What the Indicators Say About the Pound’s Fate"},"content":{"rendered":"

The Egyptian pound continues its unprecedented decline against foreign currencies on the local parallel market, or black market, with the dollar rising to between EGP 70 and 72.5, while its official value is equivalent to about EGP 30.9 to the dollar in banks.<\/p>\n

Egyptians are awaiting the outcome of the meeting of the Central Bank of Egypt’s Monetary Policy Committee tomorrow, Thursday, when it meets to decide the fate of interest rates this year, either by adjusting them, “flotation”, or holding them.<\/p>\n

Last year the committee took six decisions to hold interest rates, against two occasions on which it announced rate rises, in March and August.<\/p>\n

According to the indicators put forward, economic analysts’ expectations varied between predicting that the currency’s rate would be held for the seventh time and the announcement of its liberalisation, which would mean a sharp fall in its value.<\/p>\n

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Floating the Exchange Rate<\/h3>\n

Liberalising the currency, or flotation, is a method used in managing monetary policy, meaning that the central bank leaves the currency’s exchange rate and its parity with other currencies to be determined by supply and demand in the money market, linked to the extent of liberalisation of the state’s national economy and the flexibility of its productive apparatus.<\/p>\n

Liberalising the exchange rate can also be defined as abandoning the setting of the state’s currency rate against its parity with various currencies so that it can be freed automatically without intervention by the government or the central bank, as liberalising the currency means floating the pound, with the currency’s rate remaining in a state of constant change depending on supply and demand in the markets.<\/p>\n

Exchange rate liberalisation<\/a> comes in two forms: the first is free liberalisation, or free float, which means relying entirely on the law of supply and demand to determine the exchange rate without government intervention.<\/p>\n

The second is directed or managed liberalisation, which means that the exchange rate is determined based on the law of supply and demand but with intervention by the state and the central bank, so that the central authority directs the currency’s exchange rate against other currencies by responding to certain factors according to the supply and demand of currencies, the method followed by the regime and the Central Bank of Egypt in determining the local currency’s rate.<\/p>\n

Economist Ehab Abu Samra points out in his conversation with Zawia3 that the principle in valuing currencies is liberalisation and submission to the golden square of supply and demand and abundance and scarcity, from which the real value of everything is calculated. He adds: “For example, the value of real estate is supposed to be determined by submission to the golden square: supply, or abundance, is 13 million closed properties in Egypt, and demand is less than that, which has resulted in a bubble, real estate inflation and frozen funds worth more than EGP 6 trillion, because of a rentier economic behaviour the state adopted from the 1970s”.<\/p>\n

He continues: “The most successful flotation took place between 2016 and 2019; the flotation absorbed the black market when it began by raising the dollar to EGP 20, then it fell in 2019 to EGP 15, so that citizens and investors turned to buying from official banks”.<\/p>\n

The first official attempts<\/a> to liberalise the local currency’s rate against the dollar were announced by former President Mohamed Anwar Sadat in 1977, when he took a decision to lift subsidies on 30 basic goods, such as bread, sugar, rice, cooking oil, tea, petrol and meat, by up to 50%, in preparation for lowering the Egyptian pound’s value against the US dollar after sovereign debt reached USD 8.1 billion at the end of 1977. But the Egyptian people rose up rejecting those decisions in what is known historically as the “bread uprising”, and Sadat’s government backed down on its flotation decision at the time.<\/p>\n

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Expectations<\/h3>\n

The research department of HC Securities and Investment expected, in a research note<\/a> issued on 27 January, that the Monetary Policy Committee will hold interest rates at its meeting tomorrow, for the seventh time.<\/p>\n

But its analysts did not rule out a move to raise interest rates, expecting “a rate rise if the official exchange rate changes, coinciding with the completion of the postponed first and second reviews by the International Monetary Fund and reaching an agreement on doubling the value of the Fund’s three-billion-dollar Extended Fund Facility, if not more”.<\/p>\n

Cairo reached the outlines<\/a> of an agreement with the International Monetary Fund mission, which recently ended its visit to Egypt, on an amended loan programme including an urgent reduction in the pound’s value and an increase in the programme’s value from three to seven billion dollars. According to the outlines of the announced agreement, experts expected the central bank’s decision at its meeting tomorrow to lower the pound’s value, to prevent the growing gap between the dollar rate in the official and parallel markets from widening.<\/p>\n

Experts’<\/a> opinions on the central bank’s decision varied: some expected it to keep the interest rate unchanged to improve the economy’s position with credit rating agencies; but most of them, including Morgan Stanley, HSBC and HC Securities, believe the central bank may raise the interest rate by between 2 and 3% to absorb the large liquidity held by individuals and confront accelerating inflation, with a new reduction of the pound.<\/p>\n

In the same context, Zuhdi El-Shamy, professor of economics and political science and deputy head of the Socialist Popular Alliance Party, says the situation has now become “out of control”, and the Egyptian authorities cannot control the market, as the gap between the official and parallel markets keeps growing and has reached three times. He described it: “What is happening is a state of complete economic failure, which we warned against, and they did not respond to us”.<\/p>\n

He adds in his conversation with Zawia3 that the Egyptian central bank’s decision may bring a new interest rate rise. He continued: “Failure has come to threaten Egyptians’ lives; citizens cannot buy a loaf of bread now. The authorities must work in parallel on measures to confront the currency’s collapse and accelerating inflation, such as raising wages and pensions to compensate for prices rising daily, as traditional wage increases do not keep pace with price increases, which has raised the proportion of citizens who have fallen below the poverty line above the announced rate”.<\/p>\n

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Fiscal and Monetary Authority<\/h3>\n

Economist Ehab Abu Samra says the state has neglected the separation of powers, and a distinction must be made between the state’s fiscal and monetary tools: the central bank is the state’s monetary authority, and its tools are setting the interest rate, the currency’s value and banking procedures, tools of limited capacity in dealing with situations; while the Ministry of Finance is the fiscal authority, and its tools are broader, such as applying the tax system, customs, licences and fees, increasing export support and customs or tax exemptions for citizens or investors. For example, in 1999, Kamal El-Ganzoury’s government intervened as a buyer of dollars in the Egyptian market because of the abundance of dollars on offer at the time, to create price balance in favour of the Egyptian investor, an example of the state following fiscal policies to control the market.<\/p>\n

He points out that the central bank is a mirror of the government’s performance and should not plan monetary policies, so it should not be blamed for what is happening now. He adds: “Only the central bank has control over and disposal of the reserves it holds, but the state intervenes in a way that causes confusion, which has damaged the central bank’s mission and incapacitated it. The current central bank governor was also appointed to spite the former governor, Tarek Amer, despite suspicions of financial corruption surrounding him that led to his earlier dismissal from his job”.<\/p>\n

On the central bank’s anticipated decision at its meeting tomorrow, he stresses: “Whatever the results of the meeting, they will have no effect. But flotation of the pound may be dictated to it by the authorities against its will”. He comments: “The decision to float the currency requires a permanent World Bank committee to monitor the Egyptian government and the central bank, which has actually been operating for two years, but it is limited to submitting reports and indicators to the World Bank, and it is expected to begin monitoring and intervening in the central bank’s decisions and dealings this year, similar to the Dual Control debt commission in the era of Khedivial Egypt”. As for the committee’s powers, it will monitor revenues and spending and intervene in directing the central bank on how to spend them on citizens, so that we become “deprived of our will”.<\/p>\n

He points out that 56% of Egypt’s economy is outside the fiscal tools because it is owned by the army, according to a statement by the Ministry of Finance, portending an anticipated catastrophic collision once the “debt committee” begins its work, in the event of a precise accounting evaluation, and demands to review and monitor the economies of the army and the sovereign bodies, including investment and sovereign funds. He continues: “I give the example of the New Administrative Capital project, which I expect to cause severe confusion when the debt committee rules on it, as the land on which the project is built is not registered in the project’s name to this moment, the company in whose name it was announced has not yet been registered, and the talk of listing it on the stock exchange is a sham procedure that has not been seriously implemented to this moment”.<\/p>\n

The economist describes Cairo’s situation as an economic catastrophe threatening to lead to economic paralysis, saying “we are living in an unprecedented scarcity economy resembling what precedes famines, as history tells”. He concluded by offering some advice to the Egyptian government, which he describes as first aid: immediate support for exports; the gradual exit of sovereign bodies from the Egyptian market, because production is paralysed; activating a civilian accountability committee, examining the budgets and fund movements of the new sovereign and investment funds and bringing them back into the state’s general budget; and finally, he suggests that the government take immediate action to suspend the enforcement of rulings in financial cases related to traders and investors and their debts to banks and the state, with facilities for repayment over the next three years, especially as banks’ collection rate for those debts does not now exceed 12%, as he describes it.<\/p>\n","protected":false},"excerpt":{"rendered":"

The pound hits 70 to 72.5 per dollar on the black market as Egyptians await a central bank decision that analysts say could bring a new devaluation.<\/p>\n","protected":false},"author":11,"featured_media":7780,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[409],"tags":[20257,20250,20251,20252,20089,20254,20258,20253,20256,20255],"kateb":[695],"class_list":["post-18737","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics-en","tag-1977-bread-uprising","tag-black-market-dollar-rate","tag-central-bank-of-egypt-mpc","tag-devaluation-expectations","tag-egyptian-pound-flotation","tag-ehab-abu-samra","tag-hc-securities-forecast","tag-imf-programme-increase","tag-managed-float","tag-zuhdi-el-shamy","kateb-raba-azzam"],"jetpack_featured_media_url":"https:\/\/zawia3.com\/wp-content\/uploads\/2024\/01\/\u0646\u0633\u062e\u0629-\u0645\u0646-\u0627\u0644\u062a\u0639\u0648\u064a\u0645-\u063a\u0644\u0627\u0641-\u0641\u064a\u0633\u0628\u0648\u0643.png","_links":{"self":[{"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/posts\/18737","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/comments?post=18737"}],"version-history":[{"count":1,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/posts\/18737\/revisions"}],"predecessor-version":[{"id":18738,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/posts\/18737\/revisions\/18738"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/media\/7780"}],"wp:attachment":[{"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/media?parent=18737"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/categories?post=18737"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/tags?post=18737"},{"taxonomy":"kateb","embeddable":true,"href":"https:\/\/zawia3.com\/en\/wp-json\/wp\/v2\/kateb?post=18737"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}