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Why Cairo should devalue the Egyptian pound

Recent devaluations of the Egyptian pound are making importers, contractors, consumers and the government nervous, but this may be what Egypt needs to become a more competitive exporter of products and services.

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).

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