Egyptian pound's drop part of Central Bank's plan
The Central Bank's efforts to reduce the price of the local currency against the dollar are working to undermine the black market, but these measures risk increasing prices.
The Egyptian pound has seen a rapid decline since Jan. 19 against the dollar, which had maintained a value of 7.14 pounds for more than six months. According to the National Bank of Egypt, with the start of banking transactions this week, the dollar rose again on Jan. 26 to 7.47 pounds. At the end of the week, the price of the dollar reached 7.59 pounds in Egyptian banks.
Heba al-Laithi, a professor at the Faculty of Economics and Political Science at Cairo University, told Al-Monitor that the secret behind the pound’s huge leap backward is simply supply and demand. The dollar supply comes from activities such as tourism, exports, foreign investment and remittances from Egyptians abroad, while the demand for the dollar comes from activities such as imports and the discouragement of foreign investment in the country. As the demand for the dollar increases and its supply decreases, its price rises in the market relative to the pound.
Laithi explained that Egypt’s Central Bank supports the local currency. If there is a lack of supply for the dollar, the Central Bank pumps large amounts of dollars into the money market. This way, the dollar’s supply and demand reaches a balance, and its value does not rise against the pound.
What caused the depreciation?
