After more than sixty years of pegging the Egyptian pound to the US dollar, Egypt decided to break its currency peg to the dollar in several steps. It is worth noting that Egypt’s need to the US dollar has increased because of the acute dollar shortage in the Egyptian market and the global increase in the dollar exchange rate in addition to the historical decline in the value of the Egyptian pound against the dollar. As a result, the Egyptian economy has negatively affected and Egypt could not import its basic materials.
During Egypt Economic conference 2022, the governor of the Central Bank of Egypt— Hassan Abdullah—said, ” It is a mistake that some people peg the local currency to the US dollar especially that America is not Egypt’s top trading partner.”
Therefore, Egypt’s moves aim to break the peg of its currency to the US dollar through the following steps:
🔷Issuing an index for the Egyptian pound that includes a basket of gold and some other international currencies.
The Central Bank decided to create an index for the Egyptian pound’s value against other currencies as it is no longer acceptable to determine the value of the pound against other currencies according to the pound’s value against the U.S. Dollar. Also, this index determines the value of the Egyptian pound through the amount of gold the country possess taking into consideration the performance of the pound against other currencies such as the Chinese yuan, the Japanese yen, and the pound sterling.
🔷Adopting the yuan in trade exchange with China.
The Egyptian government signed currency swap agreements with trading partners to adopt local currencies instead of the US dollar in their trade exchange. Accordingly, a three-year currency swap agreement, worth 18 billion yuan, was signed between the Central Bank of Egypt and the People’s Bank of China. This agreement enables Egypt to import directly from China without any vehicle currency such as the US dollar.
🔷Importing wheat in Egyptian pounds instead of dollars.
Egypt is one of the world’s top wheat importers, with a volume of 12 million tons annually. Therefore, abandoning the dollar and importing wheat in other currencies such as the pound, the rupee, and the yuan from the Indian and Chinese markets, will relieve pressure on the Egyptian economy and on the demand for the dollar in Egypt.
🔷Adding the Egyptian pound to the Exchange Rate List of the Central Bank of Russian Federation.
After Russia’s removal from the global Swift system, the Russian Central Bank adopted several global currencies, mainly the Egyptian pound, to be used for payment in the main markets. This will allow both countries to use their local currencies in their trade exchange without the US dollar.
