The Egyptian pound has fared well in 2009 according to many observers, who argue that the pound has managed to maintain a stable exchange rate to the US dollar and other major currencies.
“The Egyptian pound has held up quite strongly in a turbulent year, says Angus Blair head of research of Beltone Financial.
Fayez Al-Dafrawy, owner of Al-Khaleej exchange bureau, echoed the same view.
Al-Dafrawy, who believes that Egypt has not been badly hit by the global economic crisis, argues that there is enough liquidity in the market.
“The only major move the currency market witnessed was that of the Euro and Sterling against the US dollar and in turn against the Egyptian pound, Al-Dafrawy added.
Since the beginning of the year, the Egyptian pound has not fluctuated sharply against the US dollar, reaching a maximum of LE 5.75 per dollar in May and a minimum of LE 5.47 per in December.
Adel Beshai, professor of economics at the American University in Cairo, hailed the performance of the Egyptian pound in a year of global recession.
According to Beshai, strict regulations imposed by national banks have helped the Egyptian pound maintain its exchange value.
Blair also thinks that the conservative rules of the Central Bank of Egypt (CBE) have played a significant role in protecting the Egyptian pound from sharp fluctuations.
“It’s important to have confidence in the currency, he argues, adding that stability is important because it gives credibility to the economy.
However, Mamdouh Al-Waly, deputy editor-in-chief of Al-Ahram for Economic Affairs, is critical of the role played by the CBE.
“The fact that the Egyptian pound’s exchange value against major currencies has been relatively stable does not reflect the strength of the pound, he explains, criticizing the façade of stability the limited fluctuations of the pound’s exchange rate give.
Al-Waly argues that banks, exchange bureaus, and market forces of demand and supply do not really affect the Egyptian pound’s exchange value because the CBE always interferes to limit appreciation or depreciation of the national currency within a certain range.
“Ours is a managed float system. In other words, we don’t have a free currency market in Egypt, says Al-Waly.
Many economists criticize what is known as “dirty floating because they believe that the government’s intervention result in exchange rates that do not really reflect the currency’s actual market value.
Although Al-Waly believes that the CBE’s intervention in the currency market is not well-calculated, he admits that a stronger pound can benefit Egypt.
“A stronger Egyptian pound can do good to the country as we import more than we export, he told Daily News Egypt.
But still a stronger pound is a double-edged weapon as it can harm the country’s economy by making its exports more expensive for consumers abroad. While stressing the importance of protecting national currency from sharp fluctuations, Blair explains that this is one of the side effects of a stronger currency.
However, according to some views, Egypt, the world’s largest wheat importer, will not be hurt much by maintaining a stronger pound because the country has a negative balance of trade.
“The stability of the pound’s exchange value has not benefited ordinary Egyptians as its purchasing power has been eaten up by an increasing inflation rate, says Al-Dafrawy.
Al-Waly believes that Egyptian officials manipulate numbers to give the impression that the economy is faring well.
However, many experts argue that both positive and negative speculations will have minimal effects on the pound’s performance against major currencies in 2010 since the CBE will continue to keep a tight grip on the currency market in Egypt.