Egypt is turning the page on years of keeping the pound’s value stable around the dollar

The Egyptian officials taking part in the Economic Conference on Sunday were candid about spotlighting past policy shortcomings, according to a report by Bloomberg News Agency.

Under the auspices of President Abdel Fattah El-Sisi, the Egyptian Economic Conference 2022, was launched on Sunday morning 23-10-2022, in the New Administrative Capital in Cairo, to draw a roadmap for the future of the Egyptian economy.

The three-day event, which isorganized by the Egyptian government during the period October 23-24, 2022,was called for by President Abdel-Fattah El-Sisi in early September when he urged the government to organizean economic conference to discuss the present economic conditions in order to boost all sectors of the domestic economy.

Hassan Abdalla, the central bank’s acting governor, said Sunday at the economic conference in Cairo that Egypt plans to develop a new indicator for its currency and add instruments to hedge against risks, as it turns the page on years of keeping the pound’s value stable around the dollar.

“We will make an index for the Egyptian pound through a group of other currencies in addition to gold in order to change the culture that we are linked to the dollar,”

For years, the pound had been kept largely stable against the US dollar, a costly effort that also required interest rates to stay elevated.

Abdalla became acting central bank governor in August after the surprise resignation of his predecessor, long seen as a supporter of a stable currency.

Russia’s invasion of Ukraine

But the economic fallout of Russia’s invasion of Ukraine and an exodus of foreign investors in its local debt have prompted a devaluation in March and kept the pound under pressure since then. Investors have also been bracing for a second wave of depreciation, with the government days away from agreeing to a new loan from the International Monetary Fund, which favors a more flexible exchange rate.

Officials have already signaled they now favor a more flexible currency to support an economy whose biggest trade partners are China and Saudi Arabia. The challenge though is how to break the mindset that remains fixated on the pound’s value against the dollar and sees the exchange rate as a barometer of the health of the broader economy.

Speaking earlier at the same conference, Prime Minister Mostafa Madbouly took aim at that perception, saying “we have the impression, as Egyptians, that the currency price is linked to the strength of the economy.”

Instead, he suggested that a weaker currency could at times be more beneficial. “Sometimes countries plan” such a step to strengthen the economy and exports as well as to draw in investments, Madbouly said.

Some of the world’s biggest banks have said the Egyptian pound is still too expensive amid a surge in the US dollar.

In the non-deliverable forwards market, the one-month contract signals a drop of about 8% in the currency, which was at around 19.6785 per dollar in offshore trading on Monday, near a record low reached last week.

An even weaker pound will present a threat to inflation, which has already accelerated to the fastest pace in almost four years.

Price growth is now an area of critical focus for Egypt, according to officials at the event. The pickup in inflation is creating an additional burden in a nation of over 100 million, the majority of whom rely on some sort of state support to cover basic needs.