Posted on 11/06/2016 7:48:23 AM PST by Lorianne
The Egyptian pound slid against the dollar on Sunday, the first full business day since Egypt took the unprecedented step of floating its currency and significantly hiking fuel prices.
The bold double move met key demands set by the International Monetary Fund for a much-needed $12 billion loan to overhaul the ailing economy, but has also led to price increases on a number of goods, including food and transport.
Banks were selling the U.S. currency at around 16 pounds while buying it at around 15.5. The Central Bank on Thursday devalued the pound by 48 percent, setting a holding exchange rate of 13 pounds to the dollar that was shattered within hours.
Prior to the floatation, the dollar's official exchange rate was nearly nine pounds. Earlier last week, it traded at an all-time high of over 18 pounds on the parallel black market.
(Excerpt) Read more at hosted.ap.org ...
A decade ago....with terror attacks on tourists, you could see this coming. They sunk the golden egg.
Today, I can see various vacation packages (from Frankfurt) to Egypt....two weeks, airfare, all-inclusive deal, 5-star hotel, drinks, breakfast and dinners, etc....for 500 to 600 Euro. They are literally begging people to come. A decade ago, it would have been 1,500 Euro.
Turkey is going the same way.
Floating Exchange Rates
Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed “self-correcting,” as any differences in supply and demand will automatically be corrected in the market. Look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.
In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency reflects its true value against its pegged currency, a “black market” (which is more reflective of actual supply and demand) may develop. A central bank will often then be forced to revalue or devalue the official rate so that the rate is in line with the unofficial one, thereby halting the activity of the black market.
In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation. However, it is less often that the central bank of a floating regime will interfere.
Read more: Currency Exchange: Floating Rate Vs. Fixed Rate | Investopedia http://www.investopedia.com/articles/03/020603.asp#ixzz4PFF54viM
Follow us: Investopedia on Facebook
Yes, plus Egypt is not self sufficient in any area ... food, energy, other resources ... for the population they have.
The only leverage they have is the Suez canal and they use that to get billions of dollars in aid in addition to legitimate income off the canal. They rely on extortion and even then can barely feed their people.
Not a sustainable situation.
Over the next decade....I expect at least two or three million Egyptians (university grads) to give up and leave for Europe.
With predictions that Hillary will win, I’m surprised their pound is valued above 0.
She’ll make it her mission to destroy Egypt’s government and put in the Muslim Brotherhood.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.