9 - 15 August 2001
Issue No.546
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Al-Ahram Weekly Online 9 - 15 August 2001 Issue No.546 |
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In a step aimed at resolving the exchange rate crisis recently suffered by the Egyptian economy, the Central Bank of Egypt announced on Sunday that it would raise the central rate of the pound to the dollar by LE0.25. Many perceive this as a positive step towards determining a realistic exchange rate reflecting market forces.The past months have witnessed a crisis in the foreign exchange market, resulting from continued demand for the dollar, simultaneous with an essentially fixed exchange rate which did not allow a wide enough margin of fluctuation to reflect actual demand and supply.
Over the past years, Egypt's foreign exchange market has witnessed extensive reforms which, in order to provide the market with its hard currency needs, gave banks more freedom to determine the exchange rate, and allowed exchange bureaus to be established across the country. But the rising import bill of the past four years, accompanied by a fall in foreign currency reserves, has resulted in continuing and substantial pressures on the exchange rate. This week's new central rate set the pound at LE4.15 to the dollar, a LE0.25 rise from the LE3.90 rate set last July. The authorities also widened the margin of fluctuation for exchange to three per cent. This is the third such step to be undertaken since January. The news was well received by all those dealing in the currency market: bankers, investors and exchange bureaus. But the economic authorities still need to rein in the currency speculation which has induced artificial fluctuations in the exchange rate and which hinder efforts to attain a more realistic value for the pound.
Moreover, it is essential to address the real reasons for the crisis, through long-term strategies. Economic measures must encourage more exports of goods and services in order to swell the economy's foreign currency resources, and bolster the strategic reserves held by the Central Bank. This is imperative if the pound is not to continue in the spiral of devaluation which it has suffered of late.
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