The value of the Egyptian pound has been fairly stable since 1991, thanks to the government's efforts to maintain a stable exchange rate against the U.S. dollar. Traditionally, the government's policy has rested on the principle of defending the Egyptian pound against the U.S. dollar and increasing the country's foreign reserves. However, since 1998, a policy designed to keep the supply of U.S. dollars tight by removing them from the market led to a 10-12 percent devaluation of the Egyptian pound against the dollar in the last 6 months of the year 2000. This setback occurred despite government assurances that the pound would not be devalued. As a result, the Egyptian pound's exchange rate has fluctuated since the beginning of 2000, moving from EP 3.4 to the dollar in January 2000 to EP 3.8 to the dollar by the end of the year.
|Exchange rates: Egypt|
|Egyptian pounds per US$1|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
The banking sector is expected to continue suffering from foreign currency shortages in 2001, as the supply of U.S. dollars remains tight. For the time being, the government appears to have allowed market forces to determine the exchange rate of the pound as a means of relieving the pressure caused by tight foreign currency supplies. The government is hoping that in the longer term, the tight foreign currency supply will be offset by a rise in foreign currency receipts from the tourism sector, a lower budget deficit, and decreased imports.