Foreign exchange liberalization and it"s [its] impact on economic growth and stability of the Egyptian economy : a case study

Egypt has gone through three stages of economic adjustment. The first began in 1945, when Egypt joined the International Monetary Fund and the British Sterling Areas. In 1947, Egypt withdrew from the Sterling Areas and began practicing restrictive foreign exchange control. The second stage, 1960-1973, is associated with the Socialist Transition and the nationalization of banks and the private sector. During this period, the Central Bank continued to control foreign exchange, and the Egyptian economy suffered an acute shortage of foreign exchange and a decline in the public sector demand for both goods and services, as well as a chronic balance of payments deficit. The third stage was initiated with the adoption in 1973 of the "Infitah" (Economic Openness) policy, which marks a turning point in the transformation of the Egyptian economy from a socialist to free market economy. The period 1973-87 was a period of unstable growth, as foreign exchange control by the Central Bank continued with a variety of exchange rates (e.g., basic rate, official rate, special rate, bank rate, bank pool rate, and new bank rate) and the black market offered the most attractive rate of exchange for tourism, imports, and workers" remittances. Finally, in February 1991, the government created a free market for foreign exchange where the market forces of supply and demand were the real power in determining the rate of exchange for the Egyptian Pound. The Central Bank began to use "open market operation" as its tool to manipulate the market and to achieve a stable rate of exchange. The creation of the free rate of exchange market was a successful step to achieving growth, stability, and economic development for Egypt. (Author abstract, modified)