The Egyptian pound has been floated, and today, the dollar's exchange rate in banks has reached 13 pounds after the Central Bank decided to liberalize the exchange rate. On the black market, the dollar reached 13.75 pounds. This comes after it had surged to 18.25 pounds in just one week, surprising everyone with the rapid increase. But the harsh reality we now face is that the official dollar rate during Sisi's rule has tripled compared to Mubarak's time and is double what it was during Morsi's time, despite multiple promises that it would drop below 10 pounds. Let's understand the story through some key points:
First, no new investments have entered the country, and all promised foreign investments have not materialized in the past two years. No new loans were received last year, and previous loans were consumed in unproductive areas. As Sisi stated, the available dollars have been drained into unnecessary arms deals and projects that consumed vast amounts of foreign currency to boost public morale. As a result, the government's dollar reserves have dropped to their lowest levels, and the black market has become the primary source for investors and traders to obtain dollars, leading to a sharp rise in its price.
What did the government do?
On October 22, a critical meeting was held between Sisi, the Central Bank Governor, and several ministers. Everyone expected an announcement of the pound's flotation or a devaluation by the World Bank loan conditions.
But after the meeting, nothing happened, no decisions were made, and the official dollar rate in banks remained at 8.88 pounds. It was as if the government was telling people,""Deal with the crazy rise in the dollar and prices on your own."" However, many people didn't believe the meeting ended without any secret decisions.
After that, a newly established body called the""Supreme Investment Council"" chaired by Sisi, held another meeting. The meeting resulted in several announced decisions, including support for Egyptian and foreign investments through tax reductions and broader opportunities and support for the Egyptian pound. However, the announced measures were different from reality.
What emerged later was that these meetings were a prelude to several steps that contributed to yesterday's situation, where the dollar's rate in banks rose to unprecedented levels. Among these steps were:
Prime Minister Sherif Ismail told parliament that the dollar's rate in banks would soon be close to the black market rate due to reforms already implemented by the Central Bank. This statement caused confusion in the currency market.
The Central Bank then decided to stop accepting deposits of dollars from unknown sources in Egyptian banks, forcing those holding dollars to prove their legitimate origins.
In a surprising move, the" Federation of Chambers of Commerce" issued instructions to importers and major traders to temporarily halt the import of non-essential goods for three months, limiting imports to essential goods only. This reduced demand for dollars on the black market, prompting currency traders to lower their prices.
A massive media campaign spread yesterday, promoting the idea of the dollar's collapse, with statements from senior financial and economic officials in Egypt. For example, the head of the National Bank of Egypt told Ahmed Moussa that the dollar was being sold on the black market for 10 pounds, a claim that wasn't accurate.
Electronic brigades launched several fake hashtags on social media, like "Sell it before you lose it," along with jokes about the dollar's rate on Facebook and Twitter without verifying the actual exchange rate at currency exchange offices.
At the beginning of the month, when Egyptian expatriates sent remittances to their families in dollars, they found that currency traders bought dollars at the new reduced rate due to the import ban decision.
Finally, the big blow came this morning when the exchange rate was liberalized, and the pound was partially floated in banks. As a result, those holding dollars would find it better to exchange them through banks, where the rate is higher than on the black market. However, the problem is that withdrawing or buying dollars is challenging. Prices are continuously changing based on supply and demand.
Conclusion:
All these moves were made to give the impression that the dollar dropped from 18 to 13 pounds in just 6 hours, but the truth is that it was only 7 pounds earlier, and the Central Bank Governor had promised it would return to 4 pounds.
Therefore, we can expect a sharp price rise due to the exchange rate liberalization, mainly since 70% of foodstuffs are imported, and their prices will increase by 48%. Without foreign investments, real exports, and the operation of national projects that bring in hard currency, the pound will continue to deteriorate, possibly even worse than before, as seen in the inflation experiences of Zimbabwe and Sudan.