What does an index for the Egyptian pound mean?

Economic and banking expert Ahmed Shawky said that issuing an index for the Egyptian pound is one of the most important recommendations for the “Economic Conference 2022 – Egypt”, especially since Egypt is a non-oil country  so there is no need to tie its currency to the US dollar only.

The US dollar peg is evident in the central banks in the Gulf countries dealing as oil countries with the decisions of the US Federal Reserve where as soon as the decision is issued, the central banks follow suit – whether by raising or fixing the interest rate, whereas Egypt is a completely different model.

Shawky stressed that it is important to determine the extent of the strength of the Egyptian pound in global markets, which is not only governed by the US dollar but five other currencies, including the yen, the yuan, the euro and the pound sterling.

Calculating the time there is a difference in the strength of the Egyptian pound against these currencies helps determine the strength of the Egyptian currency in global markets, he explained.


What is the currency strength index?

Economists view the currency strength index as the visual guide that shows “strong versus weak” currencies.

Currency strength indicators use exchange rates for different currency pairs to produce a comparable overall strength for each currency, as simple counters may not use any weighting.

While more advanced counters apply their own weights, and there is a possibility to even combine other indicators with a measure of currency strength, to provide trading signals.

The matter clearly helps to identify the strength of a currency against other currencies, which was prompted by the Governor of the Central Bank of Egypt, Hassan Abdallah, who indicated during his speech on the first day of the economic conference that the CBE is currently working on currency hedging contracts, and finished future contracts.

Economic expert Samar Adel, considered the thesis of the CBE Governor the most important during the conference.

She noted that flexibility in the exchange rate will help the market to absorb the rise or fall in accordance with global crises.

And that the new monetary policy means that the Egyptian pound is not affected significantly, she said, unlike the US dollar by problems in the US, but rather balance occurs with an index that determines its value against other major currencies in global markets.

There is a difference between flexibility and a price drop, she noted, as the price drop does not serve the country’s trade balance in which imports are clearly higher than exports, and thus will lead to a clear crisis regarding the presence of hard currency and thus pay the price of imports that Egyptian markets need.

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