Monday, 5 March 2012

Bretton Woods - Egyptian Style

I think everyone is more than familiar with the turmoil surrounding Egypt - after almost imploding into civil war, the population removed Preisdent Mubarak to make way for what they hope will be a fairer and more democratic society. Only time will tell if their wishes are fulfilled but in the meantime, let's turn to their currency, the Egyptian Pound.

I have graphed it against the USD and the GBP (I have left out the Euro for obvious reasons).....

Granted there has been a little bit of devaluation on the EGP's part but for a country that is going through the turmoil that it is, shouldn't the currency have been more aggresively sold?

Please turn your attention to the balance sheet of the Egyptian Central Bank where the following figures really stand out...

From March 11 to Jan 12 **Figures are in EGP mn
Net Foreign Assets reduced from 167,000 to 86,205 (Half of all foreign assets sold in 3/4 of a year!)
Net Domestic Assets increased from 67,454 to 174,414
Reserve Money (M0) increased slightly from 235,000 to 260,000
Circulation outside the Central bank increasing 40,000

This strikes me as a classic example of selling out all your foreign assets in order to keep your currency from devaluating and making foreign imports (most of the goods consumed in Egypt would be) more expensive. The only problem is, that the status quo can only be held for another 6 - 9 months (asssuming no speculative attacks on the currency).

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