Recently,afterprolongedbargainingandnegotiationswiththeInternationalMonetaryFund(IMF),theCentralBankofEgyptannouncedtheallowanceoftheexchangeratetofreelyfloatandhikedthekeyinterestrateby600basispointsto27.25%.Followingthisannouncement,theEgyptianpoundplummetedagainsttheUSdollar,slidingfromthestablerateof31:1maintainedforalmostayeartoaslowas50:1,markinganearly40%dropandhittingahistoriclow.Thissignificantdevalsuation,thefourthintwoyearswithpreviousonesbeing14%,19%,and17%respectively,shatteredrecordsforthespeedofcurrencydevalsuationworldwide.Accompanyingthesharpfluctuationsintheexchangerate,Egypthasbeengrapplingwithhighinflationratesthisyear,withpricessoaringforessentialgoodsincludingfood,particularlynoticeableincreasesinthepricesofmeat,poultry,grains,andbread.Fortwo-thirdsofEgypt'spopulationlivingbelowthepovertyline,thisnewyearisn'tpromising.Thesuddenrelaxationofexchangeratecontrolsandthe"aggressiveinterestratehike"inEgyptappearasradicalandabruptmeasures,buttheyareladenwithinevitabilityandnecessity.Firstly,extremeforexscarcityisamajorailmentoftheEgyptianeconomy.AsapopulousAfricannationandasignificantdevelopingcountry,Egypthasahighdemandforforeignexchangebutseverelyinadequateearningcapacity.Itstradebalancehaslongbeenindeficit,theoncethrivingtourismsectorisyettorecoverfromtheblowoftheCOVID-19pandemic,andtherevenuefromtheSuezCanalhasbeencutoffbythe"RedSeacrisis,"leadingtoacompleteimbalanceinforexinflowsandoutflows.Meanwhile,theFederalReserverepeatedlypostponedinterestratecutsandmaintainedhighrates,causingacontinuousoutflowofinternationalcapitalfromdevelopingcountries.Approximately$20billionofhotmoneyhasfledtheEgyptianmarket,accordingtoincompletestatistics.Secondly,relinquishingexchangeratecontrolsisthe"price"Egyptpaysforinternationalloans.WhentheIMFreacheda$3billionloanagreementwithEgyptin2022,theCentralBankofEgyptwasrequiredtoallowtheexchangeratetofloatfreely.Sincethen,Egypthasdevalsuedtheofficialexchangerateseveraltimes,butduetoinflationarypressures,itdidnotfurtherdevalsuethepound.Therefore,EgyptfailedtopasstheIMF'ssubsequentreviewsforfulldisbursementofloans.Inordertoobtainmoreloanstoalleviatedebtpressure,Egyptcanonlycompromiseandloosenexchangeratecontrols.AccordingtoEgyptianmediareports,afewhoursaftertheCentralBankofEgyptliftedexchangeratecontrols,theIMFagreedtodisburse$8billioninloanstoEgypt(increasingfromtheinitial$3billionbyanadditional$5billion),andtheIMFalsoprovidedanadditional$1.2billioninenvironmentalsustainabilityloanstoEgypt,bringingthetotalamountofloanstoEgypttoover$9billion.Thirdly,theparallelforexmarket(blackmarket)thrivesinEgypt.Althoughtheofficialexchangeratehadbeenpeggedataround1USdollarto31Egyptianpounds,therateontheblackmarkethadastarkdifferencefromtheofficialrateforthepastyear,reachingover70EgyptianpoundsperdollarinJanuarythisyear.Observersnotedthattheblackmarketexchangerateofferssignificantadvantagesovertheofficialrate,leadingpeopletonaturallypreferexchangingcurrencythroughtheblackmarket,resultinginadrainontheCentralBankofEgypt'sdollarreserves.Therefore,somearguethattheactualimpactofthepounddevalsuationisnotasexaggeratedasthenumberssuggest,astheblackmarketexchangeratehastosomeextentalreadybecomeabarometeroftheEgyptianeconomy,andthegovernment'sactionthistimemerelyalignstheofficialexchangeratewiththeblackmarketrate.Despitetherisksoframpantinflation,thedevalsuationofthepoundandtheinternationalaidresultingfromothereconomicreformmeasuresarestillareliefforEgypt,allowingittotemporarilycatchitsbreath.Atthesametime,Egyptisalsoexploringvariouswaystoraisemorerelieffundstoincreaseforexliquidity.RegardingEgypt'scurrentsituation,someexpertsareoptimistic,statingthattheEgyptiangovernment'scurrentfocushasshiftedfromsolvingtheforexshortageproblemtohowtofullyutilizeforextoachieveeconomiccontrolobjectivesandpromotesustainableeconomicdevelopment.Astheeffectsofexchangerateliberalizationaregraduallyabsorbed,thepound'sexchangerateagainstthedollarisexpectedtostabilizebetween45:1and50:1,andtheconvergenceoftheofficialandblackmarketexchangerateswillattractmoreforeigndirectinvestment,remittances,andportfolioinvestmentsinavirtuouscycle.However,therearealsocautiousvoices.Theybelievethatwhethertheseadditionalfundscanchangetheweakstateofthepoundisstillunknown.TheUSdollarinvestmentsEgyptcanobtainintheshortterm,combinedwithvariousloans,canonlycoverthe$29.23billioninprincipalandinterestpaymentsduethisyear.Ifthegovernmentlacksotherforexincometoincreaseimportsofbasiccommoditiestocurbdomesticprices,theproblemoframpantinflationwillcontinuetodragdownthepound'svalueandmayevenposeamoreseriousriskofcapitaloutflows.ContributedbyChenTianzhe,correspondentofGuangmingDailyinCairoEditor:DisclaimerTheviewsandopinionsexpressedinthisarticlearethoseoftheauthor's,GMW.cnmakesnorepresentationsastoaccuracy,suitability,orvalidityofanyinformationonthissiteandwillnotbeliableforanyerrors,omissions,ordelaysinthisinformation.