Egypt's Exchange Rate Liberalization: Lessons for Lebanon?

News Bulletin Reports
2024-03-07 | 11:25
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Egypt's Exchange Rate Liberalization: Lessons for Lebanon?
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3min
Egypt's Exchange Rate Liberalization: Lessons for Lebanon?

A report by Lea Fayad, English adaptation by Nadine Sassine 
 
Finally, Egypt has rid itself of the black market.
 
Now look at how the exchange rate for the dollar has changed in the Egyptian market:
 
The official rate remains fixed at about 31 Egyptian pounds to the dollar, while the black market reached over 70 Egyptian pounds per dollar at one point before dropping to 50 pounds.
 
The Central Bank decided to liberalize the exchange rate to a single rate determined by market supply and demand.
 
This step came in conjunction with Egypt signing a deal with the International Monetary Fund as a reform measure, but...
 
Why is exchange rate liberalization necessary for any economy in the world?
 
Let's go back to the basics of the problem.
 
Any country suffering from a shortage of dollars (like Egypt and Lebanon) cannot stabilize its currency against the dollar for long without sufficient foreign currency inflows.
 
If this is not available, it will reach a point where it cannot provide dollars to everyone at the official rate. As a result, those who manage to obtain dollars will sell them at a higher price to those needing the currency.
 
This creates a black market and chaos.
 
Thus, many seek ways to profit from price differentials, leading to speculation.
 
Just remember how many Lebanese were preoccupied with the difference between the exchange rate set by the Banque Du Liban and the black market rate.
 
All this comes at the expense of considering other projects that could stimulate the economy and bring dollars into the country.
 
This is all at the expense of the decline in confidence of both local and foreign investors due to monetary instability.
 
Today, Egypt's decision to liberalize the exchange rate is seen by many as the right step and a turning point, especially since it is accompanied by other financial reforms, such as addressing inflation and reducing state investment spending, in other words, giving more space to the private sector.
 
This move is also accompanied by inflows of dollars into the country, whether from the IMF, which has decided to increase its loan to Egypt from 3 to 8 billion dollars, or from the $35 billion UAE-backed Ras Al-Hikma project deal.
 
According to observers, this will lead to a return of confidence and, with it, foreign investments and remittances from expatriates, which will ultimately ease the exchange market.
 
So, will this page that Egypt has turned to address its financial and economic crisis succeed, and could it, therefore, serve as a lesson for Lebanon?
 

News Bulletin Reports

Egyot

Economy

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