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Economics

In the News

Why Egypt just let its currency crash by 48%!

Ben Cahill

7th November 2016

In recent times, Egypt have switched between floating and fixed exchange rates for its currency - the pound. After the Arab Spring of 2011 it reimposed controls and only now has decided to revert to a floating exchange rate, with the effect that it fell 48% immediately and has continued to fall in subsequent days.

The key reason for the decision to move to a floating rate seems to be because they want a large loan ($12billion) from the IMF and won't get it without making the change! According to the IMF, "The flexible exchange rate regime... will improve Egypt's external competitiveness, support exports and tourism and attract foreign investment, all of this will help foster growth, job creation and stronger external position for the country."

Of course, the cost of imports will now increase significantly which will cause some short-term pain for Egyptian consumers and businesses that need to import machinery etc.

Students may themselves be thinking how all of this could affect them so it might be a good time to ask if a) anyone has been to Egypt (perhaps unlikely, depending on where you are) or b) anyone wants to go to Egypt at some point in their life. An interesting digression can then be made into why you might want to go to Egypt, what other "bucket list" items you might have and bringing it all back to the effect of exchange rates on the cost :)

The article can be found here.

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