Quite a few countries are on the verge of a major financial collapse right now. Egypt is one of these countries, as they face a very difficult decision. Keeping the national currency afloat artificially is no longer a viable option. Instead, the Egyptian pound will become a free-floating currency. It is expected that its value will drop by as much as 50% against the US Dollar over the next 24 hours.
Fiat Currencies Bring Egypt To its Knees
It is evident for everyone to see that financial turmoil can hit any country in the world at any given time. Even though nearly every region has financial problems, some are starting to crumble sooner than others. Egypt, once a region of great prosperity, is the next one to bite the dust. Then again, things may not turn out to be as dramatic as first assumed.
The country’s central bank has decided to make the Egyptian Pound a free floating currency. Unlike most other currencies in the world, which are kept afloat artificially by central banks pumping endless amounts of “money” into the exchange rates, Egypt’s currency will be at the mercy of the free market. That does not necessarily have to be a bad thing, although the initial response by the market will not be a positive one.
According to the BBC, the Egyptian Pound may lose as much as 50% of its value against the US Dollar in the next 24 hours. That is not a positive outlook by any means, though it is far from surprising. In the end, this decision is made to strengthen the local economy, which results in going out on a limb and hoping for the best.
So far, Egypt has not managed to attract foreign investments. These struggles began in 20111, yet the situation hasn’t improved five years later. As a result there is a significant shortage of hard currency in the country. At the present time, one US Dollar would buy 8.88 Egyptian Pounds, while the actual exchange rate is very different from these rates.
Financial experts are not surprised by the Egyptian central bank’s decision. The country is looking towards the International Monetary Fund for a US$12bn loan over the next three years. To receive that loan, however, they have to enforce a more liberal exchange rate for the national currency.
For now it remains to be seen how traders will affect the Egyptian Pound’s exchange rate in the coming days. Losing half of its value against the US Dollar sounds scary, but things may very well stabilize afterward. It remains to be seen if this news will affect bitcoin usage in Egypt. It is not unlikely that consumers and enterprises will start looking for alternative financial solutions moving forward.
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