The Egyptian pound lost around 9 percent of its value throughout 2013, sealing the year at 6.9386 against the dollar, according to Central Bank of Egypt (CBE) statistics.
In an attempt to save the pound from an imminent free fall by the end of 2012, CBE embarked on 2013 with the implementation of a newly approved mechanism for managing the exchange rate: foreign exchange auctions.
The mechanism was meant to manage the gradual devaluation of the Egyptian pound rendered vulnerable by the political turmoil and economic shocks beating the country since 2011.
Through those FX auctions the CBE regularly sold an average of $40 million three times a week.
The state-run bodies tasked with importing wheat, medicine and supply goods were among the main buyers of dollars in the aforementioned auctions.
Reaching the lowest rate for the Egyptian pound against the dollar since 2003, the pound hit rock bottom at 7.0408 on 3 and 4 July with the ouster of Islamist president Mohamed Morsi.
Meanwhile, the pound recorded a low 8 against the dollar in the black market during the first half of 2013.
Over 2013, the CBE held three exceptional FX auctions through which the bank sold $600 million in April, $800 million in May and $1.3 billion in September.
Although the FX auction mechanism was praised by the International Monetary Fund (IMF) and hailed by the CBE as having saved the pound, it resulted in cutting down on foreign reserves.
By the beginning of 2013 the reserves had reached critical levels, falling below what the IMF considers a safe point – about $15 billion.
However, following Morsi’s ouster in July, $12 billion in aid from Gulf states raised Egypt’s reserves to their highest levels since the 2011 revolution.
The depreciation of the pound contributed to rising inflation levels during 2013. The annual inflation rate increased to 12.9 percent in November, up from 6.27 percent recorded in January.
Source: Ahram Online