Egyptian pound tumbles on debut

Egypt's pound tumbled more than 15% on its first day as a freely traded currency to hit levels at which it had been trading on the black market.

The currency traded between 5.395 and 5.28 against the US dollar on its debut from its old trading band of 3% around a core rate of 4.51.

On Tuesday, Egyptian Prime Minister Atef Ebeid announced what amounted to a devaluation of the pound by abandoning its peg and allowing it to float to help jump start the troubled economy.

The International Monetary Fund (IMF) has long advocated that Egypt, once considered one of the region's economic 'tigers', liberalise its financial system.

The Egyptian Central Bank will monitor the exchange rate and it has reserved the right to intervene without notice.

Devaluation

The value of the pound has been cut by 24.6% in four devaluations since late 2000, when it was pegged at 3.40 to the dollar.

The decline was triggered by an attack at the historic ruins in Luxor in 1997 in which 58 tourists died, devastating Egypt's main foreign currency earning industry.

The two-year old Palestinian intifada, sparked by Israel's continuing military offensive in Gaza and the West Bank, and the 11 September attacks on the US have further compounded Egypt's economic problems.

Egyptian Minister of State for Foreign Affairs Fayza Abul Naga warned last month that a war on Iraq would cost Egypt up to $8bn in lost revenues from tourism, exports and other sectors.

It is hoped the weaker pound will raise demand for Egypt's exports, but it could also force inflation up as imports become more expensive.