Floating the Currency to Keep Egypt from Sinking

By: Menna Eid
@MennaEid

A number of factors, such as the drastic fall in foreign investment, tourism revenues, and the devaluation of the Egyptian pound, have since the ouster of former President Hosni Mubarak steadily contributed to Egypt’s current economic crisis.

The crisis was described in The Guardian by former Minister of Finance Samir Radwan as the worst economic crisis since the Great Depression in the 1930s.

One of the government’s suggested solutions is turning the Egyptian Pound into a floating currency.

A floating currency is one that does not have a set value or exchange rate (traditionally set by the country’s government), but is determined by market conditions, such as supply and demand.

Some believe that if the Egyptian Pound were floated, the US dollar would be of the same value in the black market and the Central Bank of Egypt.

Professor of Economics and Director of Graduate StudiesAdel Beshai believes that one of the problems behind the current crisis lies in the government’s administrative policies.

Beshai blamed the Central Bank, which manages Egypt’s fiscal policies, for the crisis.

“Floating the currency is belated. It’s late. What Egypt should have done long ago is not to stick to the official exchange rate,” he told The Caravan.

Floating the pound can bring about foreign investments which will cause the prices of products and commodities to eventually decrease in the long run.

However, Beshai believes that floating the currency is also dangerous. He thinks that it can only be beneficial if a country has massive US Dollar reserves, which is not the case with Egypt.

Beshai says that Egypt currently only holds USD 19 billion in reserves, but needs at least USD 30 billion to emerge from the crisis.

Hence, Egypt should devalue its currency, he says. He also adds that the country must make the right investments by building factories that will create income for the country.

Whether Egypt devalues the currency or floats it, the prices of all goods and services will increase – including AUC tuition fees, half of which are expressed in dollars.

Construction engineering senior and Student Union President Amr Elalfy believes floating the currency will lead to an economic disaster and inevitably force the university administration to make a few adjustments.

Elalfy explained how an increase in tuition fees would cause a major decrease in the number AUC students, which would mean fewer people would be able to receive an education.

Beshai agrees that education is an integral, if not the most important, part of a nation’s development.

He believes that AUC’s administration will make the needed adjustments to ensure quality education.

“AUC is a very committed institution … I’m sure they take everything into account in terms of the money they have to spend on people,” he told The Caravan.