Egypt’s currency value drops by fifty percent in one day

imf

As part of the Egyptian government’s initiative to resuscitate its failing economy, they are trying to receive a $12 billion loan from the International Monetary Fund, a bank and organization dedicated to fostering free trade and financial stability. But in order to be eligible for the loan, Egypt had to ‘float’ its currency.

Egypt for years has had its currency ‘pegged’ to the US dollar, meaning that as the dollar fluctuated in value, its own currency would follow suit. That meant that Egypt had a stable currency that was relatively strong. But now, Egypt has removed its attachment to the US dollar, so its currency’s value is now determined by its own usage rather than the US dollar’s value.

As you can probably tell from the massive drop in value, Egypt’s currency was massively overvalued. Objects that were 5 Egyptian pounds yesterday should now cost 10, which will pose hardships for poor Egyptians in the meantime. In a country where nearly 27% of the population is below the poverty line, that’s not a good thing.

But the hope is that the shifting of its currency will allow for more foreign investment, make it more competitive on a global market, and help to decrease the growing inflation that Egypt is currently facing.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s