While the Egyptian Finance Minister revealed that the ongoing negotiations with the International Monetary Fund are going in a “reassuring” manner, analysts revealed that the Central Bank of Egypt may have already started implementing the managed float policy. The Egyptian pound against the US dollar.
Economist Hani Geneina said that the existing data indicate that the Central Bank of Egypt has already started implementing the managed or gradual floating policy of the Egyptian pound against the dollar.
Speaking to Al Arabiya.net, he explained that this procedure will result in more weakness in the value of the local currency, but this step will be followed by the completion of the agreement with the International Monetary Fund on the new financing, which will enhance the stability of the exchange market and the cohesion of the Egyptian pound.
Last March, the Central Bank of Egypt announced a sudden devaluation of the Egyptian pound against the dollar. However, analysts criticized the direct float policy, and stressed that the flexibility of the exchange market required a gradual or managed float policy.
On the extent of a relationship between the start of the pound’s decline against the dollar, and the central bank’s start of implementing the managed or gradual float policy, economist Hani Tawfiq said that what is happening in the exchange market confirms this.
In his speech to Al-Arabiya.net, he suggested that the dollar would witness increases against the Egyptian pound, but gradually. Pointing out that the moves to release goods in the ports will also lead to an increase in the exchange rate of the dollar against the Egyptian pound.
What is the difference between full and managed float?
The full float is that the central bank does not interfere at all in determining the exchange rate, and thus the exchange rate remains subject to market rules.
As for managed float, it is for the central bank to intervene periodically as a maker of the exchange market, and thus the central bank determines the buying and selling prices of the local currency, and often intervenes in the buying and selling of the local currency and foreign currencies.
It also means leaving the exchange rate to be determined according to supply and demand, with the Central Bank resorting to intervening whenever there is a need to adjust this price against the rest of the currencies, in response to a set of indicators such as the amount of the gap between supply and demand in the exchange market, levels of spot and forward exchange rates, and developments in the markets. Parallel exchange rate.
This form of floating is followed in some capitalist countries and a group of developing countries that link the exchange rate of their currency to the US dollar, the British pound, the French franc (formerly) or to a basket of currencies.
In an increasingly integrated global economy, currency rates affect a country’s economy through the trade balance. In this aspect, almost all currencies are managed where central banks or governments intervene to influence the value of their currencies. According to the International Monetary Fund, as of 2014, 82 countries and regions used managed floats, or 43% of all countries, constituting a plurality of exchange rate regimes.
A slight rise in the dollar against the pound
In the exchange market, the dollar recorded a marginal rise against the Egyptian pound during recent transactions. The highest exchange rate of the dollar against the pound was recorded in 4 banks, led by Abu Dhabi Islamic Bank and Egypt Iran Development, at 19.21 pounds for purchase, and 19.24 pounds for sale.
In the National Bank of Egypt and Banque Misr, the dollar exchange rate reached 19.16 pounds for purchase, and 19.22 pounds for sale. While the Central Bank of Egypt recorded a level of 19.15 pounds for purchase, and 19.24 pounds for sale.