IMF welcomes Egypt's new currency regime

Reuters and Ahram Online, Tuesday 1 Jan 2013

The International Monetary Fund welcomes measures taken by the Central Bank of Egypt to maintain tighter control over foreign currency supply in order to safeguard nation's international reserves

The IMF's Chief, Christine Lagarde, met with the Egyptian president during her visit to Egypt in August 2012. The international lender has kept a close eye on the Egyptian economy ever since. (Photo: Reuters)

The International Monetary Fund said on Monday it welcomed steps that Egypt has taken to stop a drain on its international reserves which had recently caused Egyptian pound hit record lows.

"We welcome the measures taken by the Central Bank of Egypt (CBE) to ensure that the country will continue to maintain a level of international reserves that can support its international trade and payments," an IMF spokeswoman said.

"IMF staff is in close contact with the authorities and we remain strongly committed to supporting Egypt."

Egypt, which has spent more than $20 billion over the past two years to defend the pound, imposed a new currency regime on Saturday that includes regular foreign currency auctions. The pound hit record lows in auctions on both Sunday and Monday in what appeared to be an effort to achieve an orderly devaluation.

The IMF's stamp of approval is important to the government because Egypt is hoping to secure a $4.8 billion loan from the lender.

Egypt won preliminary approval for the loan in November, but delayed seeking final approval until January in what appeared like an attempt to buy time to explain a heavily criticised package of economic austerity measures to the public.

The new currency regime entails that the CBE provide local banks with foreign currency through periodical auctions. By doing so, CBE aims both to control the supply of the US dollar and manage a gradual devaluation of the Egyptian pound.

In addition, CBE also announced several meassures to thwart the dollarisation wave caused by uncertainty about the pound's future projected value. Those included putting a limit on corporate cash withdrawals at $30,000 per day and placing a two per cent administrative fee on individuals who purchase foreign currencies.

The Egyptian pound is currently traded at around LE6.42 to the dollar.

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