Current currency. I finally put my computer to bed at 21:30 last night and had all intentions set on writing about yesterday’s market slide and Apple, but I had to change course this morning when I read about Egypt’s devaluation of its currency the Egyptian Pound. It’s not just the Pound that has my mind racing but also Bitcoin, which continues to hold up right below $70,000 and is this morning once again trading right at the recent highs it logged 2 days ago (bumping up against its all-time highs from 2021). I feel strongly compelled to mention both, so bear with me as I try to sew together these 2 somewhat similar topics.
Now, pay attention. Let’s start with the Egyptian Pound and the country’s devaluation. You may be wondering, “why would a country want to devalue its currency?” It has such a negative sound to it, doesn’t it. The truth is, there is no mystery to it; a devaluation is a literal devaluation, or loss of value relative to other currencies. Ok, so the question still remains; why? Well, the complete answer is too complex to lay out in a few paragraphs, so I will stay high level. Egypt is a producer of energy products (oil and gas) as well as fertilizer, amongst other things. It is not strictly a net exporter per se, but it does produce products that are fit to be exported. In that case a weaker currency makes its products cheaper to foreign countries seeking its products. As we all know by now, lower prices usually increase demand, which in this case would have a positive impact on the Egyptian economy.
Regarding that, the country has had its challenges. After a +6.7% GDP increase in 2022, last year saw a slowdown to +3.8 with economists expecting a similar increase in 2024. Unemployment is relatively low and stable, but inflation is through the roof growing by +33.8% in 2023. So, the challenge for Egypt is not necessarily to spur its economy but rather to fight sky high inflation. In recent days, the country raised its key lending rate by +600 basis points and its central bankers hope that the devaluation will help as well. In that case, a devalued currency would make foreign imports more expensive and possibly lower demand, which would ultimately help curb inflation. Egypt is currently in talks with the IMF to raise critical funds, which is likely contingent on the country’s taming its inflation problem. The central bank has essentially thrown the kitchen sink at the problem with hopes that it will help. Unfortunately, devaluation is typically inflationary .