Tarek Amer, the new governor of the Central Bank of Egypt, started to assume his responsibilities on Nov. 29, replacing Hesham Ramez, the former governor who resigned last month after a series of sharp currency devaluations. Amer started by keeping the pound at its current official levels of 7.83 pounds to the dollar, recovering from the previous reduced level of 8.03 pounds to the dollar, while offering banks a limited amount of foreign currency to partially fulfill clients’ needs for financing imports of key commodities and raw material. The dollar currently changes hands in the black market at around 8.5 pounds to the dollar.

Recent devaluations of the Egyptian pound are making importers, contractors, investors, consumers and the government very nervous. The exchange rate stood at around 5.75 pounds to the dollar prior to the January 25 Revolution, at the beginning of 2011. Since then, the pound was slowly devaluated to its current levels. But even these lower levels may require further devaluations. Taking into account a $20 billion drop in foreign reserves (from $36 billion in January 2011 to $16 billion in September 2015) in addition to a minimum of $23 billion in grants and deposits between July 2013 and the end of 2014 — mainly from Saudi Arabia, the United Arab Emirates (UAE) and Kuwait — Egypt seems to have spent a minimum of $43 billion in the last four years alone to effectively "subsidize" a low US dollar (versus the Egyptian pound).

Despite a huge trade imbalance, where the gap between imports and exports reached around $40 billion in 2014, the Central Bank was able to sustain the Egyptian pound and accumulatively increase foreign reserves by $20 billion between 2004 and 2010. Between 2004 and 2010, Egypt’s trade deficit saw a consistent increase from $6.29 billion in 2004 to $26.49 billion in 2010. Despite this growing deficit, the Central Bank under Farouk El Okda’s governorship, however, managed to keep the dollar exchange rate at around 5.75 pounds to the dollar between 2006 and 2010, with minor fluctuations, and indeed increase Egypt’s foreign reserves from below $15 billion in 2004 to over $35 billion in January 2011. This was made possible through a number of main contributing inflows, namely tourism, remittances of Egyptians working abroad who consistently transferred large amounts of foreign cash back home, and revenues from the Suez Canal and oil exports.

This effectively meant that Egypt was “subsidizing” foreign imports using these sources. The result was decreased price competitiveness of Egyptian products and services, especially with the gradual removal of custom barriers as a result of the General Agreement on Tariffs and Trade, the World Trade Organization and other trade agreements. This put pressure on Egyptian exports and helped flood the country with imported products that were cheaper to buy abroad than manufacture at home. Many manufacturers turned to importing or real estate as it became increasingly unviable to manufacture products in Egypt. But the foreign reserves were rising and the Egyptian pound enjoyed enviable stability, so few experts would seriously lend credence to the criticism directed at a low dollar and overvalued Egyptian pound.