Egypt devalues its currency

Many Egyptians buy hard currency on the black market

Under pressure from the financial markets, Egypt has devalued its core exchange rate, and broadened the band within which the Egyptian pound trades against the US dollar.

The pound-dollar rate was lowered to 4.15 from 3.9, and the trading band is now 3% in either direction, double the previous allowed fluctuation, the central bank said.

The Egyptian government has been trying to stabilise the exchange rate after intermittent dollar shortages over the past three years, and has come under increasing pressure from foreign analysts and ratings agencies to introduce a more flexible currency regime.

The move was part of efforts to implement directives from President Hosni Mubarak, which called for more stability and transparency in the foreign exchange market, said a report in the Al-Ahram newspaper.

Peg problems

In January, Egypt introduced a new "managed peg" exchange-rate regime, allowing the pound to trade in a narrow band, initially set at 1% either side of the core rate, which itself was first set at 3.85 pounds to the dollar.

Mubarak: Keen to stimulate the currency market

The rate has been progressively lowered, and the band widened, since then.

In May 2000, the country abandoned a nine-year-old pound peg against the dollar, at 3.4.

Black-market pound-dollar exchange rates recently reached 4.25 for buyers of foreign currency.

The black market has flourished, since there are tight restrictions imposed on banks for dollar sales.

The purchase of dollars from banks has been limited to a maximum of $1,000 per person, and the process involves a great deal of bureaucracy.

According to a report in the Al-Alam Al-Youm newspaper on Sunday, the country's exchange bureaux welcomed the new exchange rate, which they said would stimulate trade.

Egyptian shares, which trade on a Sunday, made an initial gain, and then fell back on concern that the devaluation would increase the foreign currency debt burden of some companies.