[Economics] 4 apparent reasons behind the Egyptian pound’s downward journey

[Guest High King Eslam]

1. Banking experts attributed the continuous decline in the exchange rate of the Egyptian pound against the US dollar to 4 fundamental reasons. Represented in; The emergence of a parallel (black) market at an exchange rate by a large difference, and the Central Bank of Egypt recently raised the interest rate by 300 basis points at once, to rise by 8 percent in 2022, and the scarcity of hard currency in banks in exchange for the decrease in cash reserves, as well as the accumulated errors in monetary policy since 2016. .

Monitoring, conducted by Asharq Al-Awsat, showed that the Egyptian pound lost about 58 percent of its value against the US dollar during 2022, as the year began at 15.75 pounds per dollar, until it reached about 25 pounds per dollar at the end of the year in the Central Bank’s transactions, in addition to its arrival to The limits of about 38 pounds to the dollar in the parallel market, thus reserving the Egyptian pound for it a seat on the “Hankey” list of the 10 worst performing currencies in 2022.
With the beginning of 2023, the Egyptian pound continued its downward journey, and its continuous decline, to achieve new low exchange levels that reached about 27.20 pounds against the dollar, as bankers believe that it will not be the final bottom point for the pound during 2023, suggesting that the pound will continue its downward journey, and record a new bottom, Until it reached exchange rates parallel to what is being traded in the parallel market, between 30 and 33 pounds against the dollar.
For his part, banking expert Tariq Hamadeh told Asharq Al-Awsat that the first steps to correct the course of the Egyptian pound is to eliminate the parallel market, explaining that the existence of the parallel market and two different prices for the exchange rate is a very big problem, which has caused the emergence of random pricing for some goods and products in the market. The Egyptian market, as well as the rise in inflation rates, reaching levels of 21.5 percent in November.
Hamada, who used to work as a banker for Blom Egypt, previously, believes that the most important factors that contributed to the collapse of the exchange rate of the pound is the emergence of a black parallel market for currency exchange, with a large exchange rate difference from the official market, as well as fixing the exchange rate of the pound from 2016 to 2022. Despite the accumulation of problems in the Egyptian economy and its passing through economic crises during that period, including the trade balance deficit, the general closure during the “Corona” crisis, the Russian-Ukrainian war, and the lack of foreign currency and tourism resources.

He added that the pound is now paying the price for the wrong monetary policy in fixing the exchange rate during the past six years, indicating that it was supposed to devalue the pound in parallel with the high inflation rates, so that we would not be exposed to the current collapse in the price of the pound against the US dollar.
For his part, banking expert Ayman Metwally told Asharq Al-Awsat that the continuation of the Egyptian pound’s depreciation journey was expected and was not surprising, and he attributed this to two additional reasons, namely the Egyptian Central Bank’s interest rate hike by 300 basis points last December. And the scarcity of hard currency in local banks and the central bank, two reasons, according to his description, came through the weak inflow of funds from abroad, and speculation on the price of the dollar in the parallel market.
Metwally adds that it is not possible to predict where the price of the dollar will reach against the pound, just as there is no bottom for this decline, pointing out that it may cross the price and psychological red lines, and may stand or exceed the exchange rates circulating in the parallel market, which range from 30 to 33. pounds against the dollar.
Metwally believes that the existence of a parallel market is dangerous to the Egyptian economy, because of which hard currency will not enter the official economic circles, and it will limit foreign investments in the country, calling for urgent measures to be taken to confront this parallel market, and to narrow the price gap in the exchange rate between official banks and the parallel market.

https://www.i3lam-al3arab.com/4-أسباب-ظاهرة-وراء-رحلة-هبوط-الجنيه-المص/