This is What Happens to Inflation when a Currency Gets Unpegged from the Dollar

The “supply shock” in Egypt

On November 3, the Egyptian Central Bank removed all exchange-rate restrictions and raised its benchmark rate by three percentage points. This was done to obtain that all-important $12-billion bailout loan the IMF had provisionally agreed to provide in August, though by November 3, the IMF’s executive committee still hadn’t ratified it.

In the unofficial market, the pound had already collapsed against the dollar. With the peg gone, the official exchange rate instantly plunged from 9 pounds to the dollar to over 15 pounds to the dollar, and four days later it was at 18 pounds.

On November 11, the IMF stopped dragging its feet and ratified the $12-billion loan.

At today’s rate of 17 pounds to the dollar, the currency has lost 48% of its value since November 3. This chart, showing the value of each pound in US cents, depicts that plunge in its horrific brutality:

But Egypt imports about $60 billion per year in fuel, raw materials, and finished goods. And for Egyptians who have to pay for them in pounds, there are some bitter consequences.

The latest announcement of those bitter consequences was the inflation rate for January: Overall consumer price inflation soared by 28% year-over-year and core inflation soared by 31%. This chart (via Trading Economics) of core inflation shows that everything from rents to computers was a big driver in a horrendous increase in the cost of living:

This soaring inflation was due to “supply shocks,” Egyptian Finance Minister Amr El-Garhy told Bloomberg TV. It was not demand driven. It was “expected,” he said, given the devaluation. And it’s going to get worse: “We knew that this is still peaking when it comes to inflation, we expect this to happen.”

Eventually, the impact of that supply shock may fade from the year-over-year statistics, and inflation might settle down, under ideal conditions, but the currency got crushed, and will remain crushed.

But El-Garhy said the rise in Egyptian stocks was an “encouraging sign, and a strong vote of confidence in the economic reform program.” He also credited the $12-billion bailout loan from the IMF that Egyptians have to service with their devalued currency.

With inflation changing so rapidly, no one knows what inflation amounts to on a daily basis. Everything denominated in pounds is losing value at a rapid rate that no one knows exactly. Inflation reporting happens after the fact, and may be unreliable. But the value that the pound loses today is what matters in order the gauge stock and bond prices today. And everyone is in the dark. The stock market denominated in Egyptian pounds has gained about 50% since the devaluation. That looks good on paper. And El-Garhy touted that. In reality, it just reflects the destruction of the currency.

And foreign investors that are chasing yield wherever they can find it jumped on Egyptian debt. Last Thursday, they bought 98.5% of the 6.6 billion pounds ($372 million) in six-month Egyptian Treasury bills that the government issued and 97.5% of 6.6 billion in one-year bills, according to the Finance Ministry, cited by Bloomberg. And these foreign yield chasers are doing what they’re doing everywhere: driving down the yield.

But these bonds are denominated in Egyptian pounds, and no one knows what inflation will do to the currency over the next 12 months.

Being long oil is a very “crowded trade,” but who’s on the other side of that trade, and what do they know that speculators don’t? Read…  Why a NYMEX Veteran is Getting Nervous about Oil

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  61 comments for “This is What Happens to Inflation when a Currency Gets Unpegged from the Dollar

  1. NotSoSure says:

    But El-Garhy said the rise in Egyptian stocks was an “encouraging sign, and a strong vote of confidence in the economic reform program.”

    When the US Dollar itself falls to hyperinflation quite a bit later, expect Dow 100K. Heck 500K.

    Bears better hibernate, otherwise they’ll be carried out in body bags.

    • chris Hauser says:

      jeez man, be optimistic.

      as to egypt, absent a military man in charge, things would be volatile.

      anybody ever think war in yemen, war in syria is a bad thing? add in a couple of other miasmas, ah, never mind.

      all i have is first world problems.

  2. James says:

    You’d want to have owned Gold if you were an Egyptian.

    A lesson for everyone ?

    • SnowieGeorgie says:


      Just to make a small connection here — to the average Egyptian with any size savings account denominated in Egyptian Pounds — were they to have held their “savings” in USA greenbux, the effect would be the same.

      I am not ( repeat AM NOT ) saying that the dollar is good as gold, actually it’s just linen with some agreed upon symbols dyed into it.

      BUT TO AN EGYPTIAN, IT MIGHT AS WELL BE GOLD. I agree with your conclusion that they should be saving in gold, or silver, OR EVEN DOLLARS.

      Because dollars are incorruptible by the Egyptian regime.

      The same would have been true during the last Russian rouble reset a coupla decades ago. Or Yugoslavia ( then ) in the early 90s. Or Zimbabwe Rhodesia for any time frame you choose. Venezuela now, too, I suppose.

      So — since the USA dollar is an established and proven safety net for anyone holding their own national currency — the lesson is to hold something that your national government cannot corrupt — i.e., the dollar or gold .

      So what exactly can Americans hold that our leaders from the foggy bottom swamp cannot corrupt ? I’ll tell ya one thing for sure, it ain’t diamonds.


      • Crazy Horse says:

        And Gold is just a shiny metal too soft to be of much use except as jewelry. Even for that use it isn’t as pretty as colored glass. At least with paper money you can use it to start a cooking fire. If a bearded white man emerged from the forest for the first time and tried to barter shiny metal for real Queen Charlotte shell money he would be laughed out of the village. (or most likely put to use pounding cedar bark and carrying out the trash.)

        Even in a society long conditioned to think that gold is valuable, which metal do you think will have the most value on Cormack McCarthy’s “The Road”? Gold, or lead encased in a brass cartridge?

      • RD Blakeslee says:

        “GOT GOLD?”

        If so, how do you store it?

        If secrecy is part of your strategy, how do you “spend it”?

        • SnowieGeorgie says:

          FROM YOUR POST :

          If so, how do you store it?

          If secrecy is part of your strategy, how do you “spend it”?

          The principles discussed are general and universal. I will
          not discuss my methods, ever. Only with one or possibly two trusted peeps.

          Jeff makes a point in his blog that you can hold $50K of gold in your hand, as I demonstrated to a recent convert in late January. Two rolls of a variety of common-date Gold Eagle one ounce bullion coins.

          That kind of density is easily hidden . . . .


          I will answer your spend question later, on this post. The question always comes up and is easily answered. Easily.

          I will close with this : People always say, “you can’t eat gold” . . . .

          Well, I’d like them to tell me how good and nutritious their greenbacks are with thousand island dressing ? LOL

          Gold is easily spent when the time comes. EASILY ! ! ! As will be silver.


        • JMiller says:


          Just some thoughts about that article that deals with gold and silver storage at home. A security company alarm monitoring system for most people is not worth it. The police usually will not respond immediately after they are called by the security company because they know that most times it is probably a false alarm. And most burglars are in and out in about 6 minutes.

          And I disagree with having decoy safes. What happens if someone brakes into your home and they can’t open the decoy safe or carry it away. Now you have someone who knows that you have a safe but does not know what is inside. Now you have to worry about them may be coming back to find out may be even when you are at home. In my situation I have my safe which is bolted to the concrete floor and is well hidden so that most burglars would not even find it unless they knew I had one and spent the time to try to find it. What I do is I leave $20 in a drawer that is easy for them to find. Knowing that most burglars want to get in and out quick they will be happy just to get something and leave. Definitely no decoy bullion either. I want them to think that they just burglarized a poor person’s home and will have no incentive to come back.

          The article says that a safe buys you time, nothing more. I do not really agree with that. Most safes that are opened during a burglary are because the burglar knew the home had a safe and brought tools along or they found the safe and used the homeowner’s tools. So a good safe will not just delay them but keep 99% of burglars from getting it open since they are not going to have the power tools to do the job assuming you take precautions and lock up any tools if you have them. I myself have no tools that they can use.

          One other thing I do for my safe that has a combination lock, is that I put a fake combination on top of the safe. That way if a burglar finds the safe he will waste 5 or 10 minutes trying to use the fake combination before he would try to force it open if he did happen to have some tools.

        • Frederick says:

          Well I will tell you how NOT to store it and that would be at the precious metal dealer that you bought it from Ref Northwest Terrotorial Mint files chapter 11 Take delivery and deal with things personally unless you have the IQ of a John McCain of course

      • RDE says:

        Its always amusing that when the discussion turns to the comparative value of fiat currencies and gold, BitCoin is never mentioned. If you had left your 4 million in Gold under the mattress for the past year, bought T bills, purchased a 2 bedroom condo in SF, or bought BitCoin with it, which investment would have been more profitable?

        Not even close! Unless you assign no value to liquidity and a very high premium to risk.

    • NotSoSure says:

      Nope. In 1998 when the South East Asian economies went into meltdown, Gold was less than 300. Holding the USD was the thing. Lesson? The only lesson is there’s no lesson.

      • robt says:

        1 oz Gold at 300 USD and 300 USD cash at that particular time and place in 1998 is the same thing relative to some other local currency – if the local currency depreciates by half then an ounce of gold gets you twice a much, just as 300 USD got you twice as much … but apart from that, your 300 USD if held since than has depreciated by 50%, and the 1 oz gold is 1200 USD, a 300% increase. That’s the lesson in your example.

        • Copernicus says:

          You want check your math.
          You have, accidentally I assume, double counted.
          It doesn’t change the point, significantly.
          It’s good to know here now, in friendly company, it could get embarrassing if it was in person.

        • robt says:

          Copernicus, please explain why you think this.

        • Copernicus says:

          If you start with $300 in cash and $300 worth of gold, you are right to say, the value of the cash has halved and the gold has increased by 300%.
          But although the gold has quadrupled, it has quadrupled in dollars, whose value has halved.
          So if you adjust for this, which you have with the cash, you find that the gold has increased to $600 in real terms.
          So the value of the cash has halved in apparent value, what it can buy from a basket of goods. While the gold has doubled.
          What you have done is, accidents, compared the Real (inflation adjusted) value of cash over time to the nominal, (not-inflation-adjusted) value of Gold. That is what everyone sees but not what they, importantly, feel.

          Like I wrote it doesn’t significantly change the point you are making but it’s helpful to know.

          It’s the money illusion, and why Economists are so fixed on Real (inflation adjusted) values.

          I have made the same slip, probably everyone has at some stage. I’m not trying to be anal retentive but I have found it helps at crucial times to be correct. Better to learn in a friendly environment.

        • robt says:

          Copernicus, thanks for that analysis. You will also notice that the gold hasn’t been sold yet, so is an unrealized gain. It could well be 2400, or back to 300 in the future.
          However, the stated 300% gain relates to the depreciated value of the dollar today, from (say) 150 dollars present purchasing power of the original 300 USD cash, to half of 1200 = 600 – the present purchasing power of the unrealized value of the 1 oz gold. The nominal dollar numbers relate the same percentage.
          I should have filled in the space in the calculation.

      • Frederick says:

        Holding the dollar(Which I do along with other currencies) is good until it isn’t Timing is everything

    • Frederick says:

      Exactly James

    • Nicko2 says:

      Actually, you’d want to own dollars.

      I’m an expat living in Egypt. It’s been a wild ride these past few months.

      Overnight the pound depreciated by over 55%, it caught many off guard. many local businesses, those who have accounts to settle in egypt pounds found their debts essentially double overnight. ….reason is, anything imported or exported must be converted to dollars or euros. The dollar continued to strengthen to over 19 to the dollar (up from 15) …. however with the release of imf money and other inflows, the currency has appreciated over 10% in the past week. Quite staggering…still, it’s down over 40% as compared to a few months ago. There was a sugar shortage a month back…imported items like salmon or beef are short in supply as locals turn to domestic origin food items.

      That said, the egypt economy is prime for outside investment. The government is stable, they are on good terms with the new Trump admin, they have new mega oil/gas projects coming online over the next 11 months…tourism is also coming back to life. Of course, the common citizen are suffering quite a bit. We may yet see food riots due to spiking inflation of over 30%….for those who have stacks of USD$, it’s surreal- many interesting business opportunities have presented themselves, not least 19% government bonds and sky rocketing local stock market. Egypt also has the cheapest Big Mac in the world at the moment, at just over a $1.20 for a Big Mac fries and coke. The situation will improve….just as long as another revolution doesn’t break out.

      • Wolf Richter says:

        Thanks for the boots-on-the-ground info.

        I assume (and hope) that as expat you’re getting paid in foreign currency. There are some other expats commenting here who live in Turkey, Mexico, and other counties whose currencies have gotten hit hard recently. If you get paid in foreign currency, you will do OK in this environment, and likely come out ahead (things, like the Big Mac you mentioned, get cheaper for you). But people who get paid in local currency, as you point out, are having a very hard time.

        • robt says:

          Hey, Wolf, off-topic, but what scale are Mrs Ikeda’s dolls? No clue on the site, and they are so precise in detail you can’t get a sense how big they are …

        • Wolf Richter says:

          We have a couple of them. One is standing up and it’s about 16 inches tall. The other is sitting and it’s 14 inches tall. They’re all in about that range, with kids of course smaller, but proportional.

          Tomoko’s brother, who is a professional photographer and took the photos, also placed some of the dolls in real-world situations and took photos of them: standing right next to a curb; sitting on a wall at a port looking out at sea; gazing up at a bicycle…. These photos are out-of-this-world good. But I don’t think Tomoko cared for them, so they’re not available, unfortunately. I should ask for them and publish them … maybe I’ll do that… thanks for reminding me.

      • robt says:

        Many years ago I worked for a company that imported a lot of stuff from Japan, and we always dealt by Letter of Credit. I recommended that we hedge the LCs by buying yen futures to match the exposure on the LCs. You don’t make anything, but you don’t lose it either.
        It went well for a little while until somebody lost the plot and decided to sell future yen without telling anyone because they felt the yen would drop and money would be made. Unfortunately, the yen rose dramatically, causing a huge double whammy loss.
        Lesson: if you’re buying from overseas, always hedge your exposure!

  3. Maximus Minimus says:

    I initially, subconsciously read the title as “This is what happens to the dollar when it gets unpegged from gold”.
    Egypt seems to have a mouthwatering inflation for the FED. The dumb populace does not know how lucky they are by paying more for less.

  4. OutLookingIn says:

    Inflation will destroy whats left of devalued fiat currencies.

    A simple inflation case involving the US dollar.

    The $370,000 of the Warden’s skimmed money that Andy skipped town with, depicted in the movie “The Shawshank Redemption”, adjusted for inflation to 2015 is the equivalent of $2,755,846.56

    Hows that for loss of purchasing power by a fiat currency?

    • Kent says:

      Purchasing power against what? You couldn’t buy an iPhone with that $370,000, but now you can for just $650. That’s almost infinite deflation.

      • Frederick says:

        That IPhone example isn’t an honest depiction of the situation whatsoever It’s just an exception due to mass production and sales like flat screen TVs Not really relevant to this discussion I believe And I know you can’t “eat” gold

    • smingles says:

      “Hows that for loss of purchasing power by a fiat currency?”

      It’s naïve and misleading is what it is.

      If you put $370,000 of the Warden’s skimmed money in 1965 into 3-month T-bills– the most liquid, conservative, risk-free cash equivalent– it would be worth over $4,000,000 in 2015. In other words, purchasing power outpaced inflation by quite a bit.

      You don’t ignore dividends when looking at the performance of stocks, you don’t ignore coupons when looking at the performance of bonds, and you certainly should not ignore guaranteed rates of return (interest / T-bills) when looking at the performance of the dollar.

      • SnowieGeorgie says:

        Nice Post ! ! !


      • OutLookingIn says:

        Misleading? Surely, you jest!

        If you put $370,000 into gold bullion in 1965 it would be worth approximately $12,807,880.00 at todays price.

        Hows that for fiat inflation, when measured against REAL money!

  5. The IMF strikes again.

  6. Tom Kauser says:

    20 kart Gold scrabs for half price ?

  7. Tom Kauser says:

    The pigeons believe they are finally fetching a fair price ?

  8. michael engel says:

    If grandpa left in a safe deposit box, in 1971, when Nixon
    divorced gold, $10,000- in cash and $10,000- in gold and
    you open it today, one dollar in 1971 is worth today 3-4 cents,
    but the gold shine. In 1971 gold was $100-$110- and today it’s
    $1,200-. x12. You have a major treasure !!
    But wait, the $120,000- of today have lost a lot of value and
    in comparison to 1971 it’s worth only $120,000×0.04=$4,800-.
    Now, suppose the gold in the box is the best of it’s breed,
    king George coins. you go to a dealer and check his offer.
    His offer will well below the current market price. Are you shocked? The retailer have to pay for a good secured location,
    for an insurance to cover robberies because he is a lucrative
    target, commission, overhead…
    He can tell you that some coins are damaged, or just give you
    an offer well below a wholesale price.
    He has no incentive to pay you wholesale price, cash on the
    spot, because he can always call the wholesaler and get coins.
    He has incentive to pay you cash only for a very suppressed
    price, well below $100,000-.
    When gold went parabolic up these retailers & wholesalers
    popped up like mushrooms, but now they are disappearing.
    On the way up there is profit and hope. No hope on the way

    • SnowieGeorgie says:

      Any stacker knows not to buy gold coins with any kind of collector value.

      Gold Eagles. Maple Leafs. Gold Buffalos ( if you want 9999 purity, like the Maple Leaf has ) Even Krugerrands . Australian somethings ( I forget this second, Kangaroos ? Koalas ? ) or Austrian Philharmonics. All bullion coins.

      No collector or stacker that I know would call the King George Sovereign the best of breed — its just a mutt. Saying it’s so don’t make it so. Sovereigns and Roosters are good to have, but nothing special at all.

      There are some stackers who have saved antique, but not rare, USA Double Eagles as a supposed insurance policy against confiscation — like in 1933 when collectibles were exempted from confiscation. But get the antiques only after one has a good-sized stash of bars or bullion coins in reserve.

      The commission on bullion coins is SMALL and COMPETITIVE.

      Much of what you say on inflation is true-ish.

      But you really do not understand what it means to be a stacker — my guess is that you read a lot about, it but do not practice it.


      • Niko says:

        If things ever get that bad, lead will be the metal of choice!

        • SnowieGeorgie says:

          Do you know of any stackers who do not have a few pounds of lead to protect their gold ounces ?

          It would be foolish to not have some . . . . .


        • Frederick says:

          Snowiegeorgie is correct Most stackers are well armed and won’t relinquish their wealth easily that’s for sure

      • PrototypeGirl1 says:

        Stacker… I like it, I’m stacking power supply, solar and optima battery charger, also charger that works for regular small batteries. It’s a start.

  9. Petunia says:

    To all the gold bugs, the Egyptians would be better off growing more cotton and selling it over here. Cotton is scarcer than gold these days. It’s hard to believe that America was once a big producer. I would trade gold for a decent set of sheets, they cost $1000.

    • Frederick says:

      If I paid a grand for sheets my wife would have me committed immediately

      • Kent says:

        Petunia is right. If you’ve ever slept in $1000 sheets you’d understand that they are well worth it. Put it on your bucket list at the asylum.

    • Nicko2 says:

      Actually, the local government is rejuvenating the local cotton market…expect to see more genuine Egyptian cotton on the market soon. It’s the best after all.

    • Koko Taylor says:

      500 Thread count cotton sheets at Ross Dress For Less, $50.
      850 Thread count for $65.

      • Petunia says:

        They are not the real thing and also not preshrunk. They lie a lot about the thread count, something to do with the way they are woven and threaded. You have to buy the luxury brands to get the real thing.

        • Frederick says:

          Sorry Petunia but a grand for sheets is insane for most of us and Kent seems to be riding next to you on this crazycar

    • You have identified a major economic problematic involving “comparative advantage.” It is well to remember this concept was British intellectual propaganda by Ricardo during the Napoleonic Wars to counter the appeal of the “Continental System.”

      IMNSHO: The smart thing for the Egyptian Government to do is to raise adequate supplies of wheat, onions, rice, etc. to feed the people directly, or indirectly for example raising chickens on the domestically produced grain, rather than attempting to generate enough foreign exchange to import food by exporting commodity crops to foreign buyers. Feed the people first, and then use any excess farming capacity for exports. This not only provides adeuate food at affordable prices, but domestic employment opportunity, and increases internal money circulation, while limiting the opportunities for “skimming” and “rent seeking.”

      One major problem is that the prices of both the imported food stuffs and exported commodities are highly subject to speculation and market manipulation.

      With the water provided by the Aswan High Dam and Lake Nasser, and the excellent growing climate, there appears to be no reason why Egypt is not self-sufficient in food, particularly if the new high yield hydroponics/aeroponics, minimizing water use is implemented, for suitable crops, and center-pivot and lateral spray irrigation for the field/commodity crops.

      But first the Egyptians must kick the IMF and other foreign meddlers/scammers out of their country, as Argentina was able to do under Kirchner.

  10. Paulo says:

    One good friend owns ‘paper gold’ as a big part of his investment plan. In his mind he thinks it is real gold, I guess. He also has lots of debt and shaky employment. When he phones me he talks a lot about it. Another buddy buys mining stocks, and does quite well when he sells and repatriates to cash. He usually makes an extra $25-30,000 per year on top of his decent salary. He uses this cash for extras and awesome vacations. The mining friend spends many hours per day researching and reading about these companies.

    Then there are people like me. I have land, tools, building skills, some cash and no debt. My friends cannot believe I have no investments beyond retirement accounts. I spend computer time reading Wolf Street and a few other sites at breakfast and at lunch. Yesterday, my wife and I went kayaking for a few hours. I also put in a few walks. Today, I will get the stove going in the shop, and while it heats up my dog and I will go for a walk. The weather is supposed to storm so it will be a furniture building day. I would consider a day spent on on investment sites as one that I wasted. Furthermore, I don’t have the background or knowledge to succeed at it. They call small investors ‘bottom feeders’ for a reason.

    What has happened in Egypt is a warning for all of us. I see the US sliding into disarray, more and more, everyday. The Headlines accelerate in direct relationship to the attacks, malfeasance, distortions, and cover-ups…and this is less than 4 weeks in to a new Govt. The financial health of any country requires confidence and stability at all levels. Clearly, things are breaking down under this constant barage. If you accept this premise, then are there really any ‘safe investments’ beyond good health, no debts, and a good place to live and/or mobility to leave if required? I don’t think there is. Gold is just a shiny metal for me, and I am not a crow. I’d rather own an orchard and garden.

    Furthermore, this day will not come back around. I plan to enjoy it…..regards

    • Paulo,

      Your comments are always constructive, well-written and informative. Thanks for that.

      This last comment of yours shows your predilection for what we in the gloom and doom domicile call : “prepping” . In the same way that almost everything can be defined or demonstrated across a spectrum ( e.g., autism, hoarding, cheerfulness, greed, generosity, spirituality, etc. ) so can the related attributes “prepper” and “stacker” . There is a lot of overlap in the prepping and stacking communities. There are full-scale preppers who stack; and full-scale stackers who also prep.

      We are kin, you’n’me.


      Myself, I fall on the low end of the spectrum for both prepping and stacking. Just a proper bit of each. I augment my retirement income with a formal warehouse job — and I mostly have standard-issue savings and investments, augmented by some jingly stacks of shiny metal.

      Going whole-hog into anything can be a recipe for difficulties.


      The three best sites on this interweb thingie of ours are these three :

      Charles Hugh Smith
      James Howard Kunstler
      and Wolf ( presented alphabetically to show no bias )

      Kunstler is an advocate of what you said so well in your comment above. . . . ( I read C,F,Nation twice weekly )

      So is Charles Hugh Smith.

      Kunstler ( of World Made By Hand fame ) and Smith are both excellent advocates of returning to simpler or more meaningful times. I will not recite their opuses or C.V.-s here. All preppers might do well to spend time with JHK and CHS.

      If we are to understand fully what is happening now, and be better situated to survive our coming travails — then reading WOLF, JHK, and C.H.S. — if not completely sufficient to the task — then reading these three constitutes a very very good start.


    • Frederick says:

      Paulo I agree with you and am also building a more self sufficient simpler life for my wife and I The only place where I differ with you is Im diversifying my land ownership with real money What Georgie says is spot on the two groups do indeed overlap significantly

  11. Maximus Minimus says:

    When I implied gold, then only as a base of the monetary system not as a storage of value in a fiat system.
    As for Egypt, it would be better off producing food on all the land it has: it is a big food importer, and the loan is likely to cover a short term import need. It goes begging for loans to cover it’s basic needs. A failed state in anything but name, and one of the club of many.

  12. robt says:

    All currencies should float, which encourages at least some degree of discipline by governments. Any attempt to peg/fix them always ends in misery but governments hold the fantasy that the value of their currency can be defined by some absolute and arbitrary measure according to their fantasies. Even pegging them to gold fails, because convertibility reveals the truth – every currency would have to be convertible or reserves would be depleted by conversion of inferior currencies. The failure of the US dollar, which began in the ’60s until the default in 1971 reveals this.
    And the black market is the real market, until reality sets in, as it inevitably does; Egypt is just the latest example of many.

    • Nicko2 says:

      Before the egypt gov depegged and floated the currency, there was a thriving black market. Many would use mules to fly to Dubai (carrying gold) to sell in exchange for USD$ , which they could in turn sell to the black market back in egypt for inflated returns. Many traders were making hundreds of thousands a month in this fashion….multiply that by countless thousands of traders and you have a countrywide problem. The first move was to formally criminalize the black market, then to close illicit forex traders….the final move was to de-peg the currency, which flushed out the black market (and many others standing in the way). So, crime doesn’t pay, better off buying depreciated local property (50% reduction in USD terms!), or local stocks with high interest returns. ;)

      • robt says:

        Every overvalued pegged currency has a black market, and it is always criminalized because it immediately reveals that the official pretend exchange rates are nonsense.
        The crime is to peg the currency, which creates the black market. Then besides defining the ‘official’ exchange rate they have to define other authorized exchange rates, depending on what you want to import. Then you have to stand in line and apply for funds at the authorized rate, funds you may never get or that take a long time to get, even if you grease the right palms. The more they try to ‘fix’ the situation, the messier it gets.
        The astute observer will notice that in any of these situations, certain government officials can get all the dollars they want at the official ridiculous rate and immediately convert them to the local currency at the inflated rate, then spend the money on price-controlled goods and services that they have preferential access to, while the masses get what’s left over. These conditions are most prevalent in socialist, especially extreme socialist countries.
        As always, the simple solution is no peg, resulting in no black market, no cost of enforcement, less or no corruption, etc.

  13. michael engel says:

    What cotton ? Egypt, almost 100 millions are very angry citizens.
    Many Egyptians live in Italy, US, S. and central America.
    They send dollars, euros and other currencies to their family
    and it’s a big part of Egypt foreign currencies resources.
    While the poor population is suffering, Egypt is becoming a
    regional super power. It got two aircraft carriers from France,
    that were built for Russia, financed by the House of Saud, they
    got Dassault Rafale top of the line airplanes, German subs,
    Russian SA 300, and of course a lot of stuff from the US.
    Because of useful terrorist in the Sinai, the Egyptian army
    40,000 soldiers in, with the agreement of Israel, in order to
    fight the terrorist. Al Sisi is a great chess player. Israel can be
    hit by either the powerful Egyptian army, or terrorist. He is in
    position to dictate deals, to make a neighbor into a colonial
    entity. Populism can be a miracle cure to the angry Egyptian
    peoples. The Palestinians, lately, fell in love with him.
    He also dance with Putin and Assad of Syria, oppose the Saudis
    actions in Yemen and that made the Saudis very angry.
    They stopped the free oil shipment and the financing Egyptian
    economy and military spending. No more free oil, no more
    brotherly support from the House of Saud no IMF, Egypt
    had to devalue. But they are a mini super power.

    • Nicko2 says:

      Egypt *should* be a regional superpower….yet, that has hardly been the case the past few decades. It’s speculated the military (a true military industrial complex) controls well over 50% of the economy (officially that number is a laughable 2%). What Egypt does have is a bounty of natural resources (ancient cultural heritage, Suez canal, large consumer population, and not insignificant supplies of oil/gas). Egypt has always played the powers against each other, sometimes taking one side over another…more often than not remaining neutral. For example, Saudi has been peeved at Egypt for not invading Yemen (avoiding a quagmire there!) plus Egypt’s indecision on how to handle Syria —so Saudi suspended oil shipments to Egypt a few months back…in turn Egypt made a deal with Iraq (and other regional oil powers) to secure oil shipments. Saudi still has multi-billion investments here, but they can no longer force the government’s hand by threatening energy supply.

      IMHO, Egyptians (and particularly the military) are uber patriotic, but they have little desire to take part in regional military adventures. As long as the Nile waters flow, Egypt will stay within its borders, there are more than enough underdeveloped prospects here to focus on (not least the domestic terrorist threat).

    • Frederick says:

      Michael I don’t think those craft you are referring to are true “aircraft carriers” in the American sense They are helicopter carriers I believe

  14. Willy2 says:

    – If you want to know what is going to happen then look at the UK. Similar story. Or one can look at Egypt to see what’s is/could be in store for the UK.
    – Remember the secession vote in Schotland ?

  15. Willy2 says:

    – When I looked at 1) the demographic situation/development(s) in Egypt in combination with 2) a (VERY) oppressive egyptian government then I knew that someday this egyptian timebomb was going to explode. And throw the country into disarray/chaos. Not a pleasant prospect for Egypt.
    – And now comes on top of that the demands of the IMF. I think that a second “Arab Spring” is inevitable for Egypt and a number of other countries in the Middle East. And that could/will have a devastating impact on the influence of the US in the Middle East.
    – This devaluation of the egyptian pound was inevitable. It was necessary to reduce the economic inbalances in Egypt. I am actually surprised to see that it took so long to implement those measures.
    – Some people say that the letters IMF stand for “Infant Mortality Fund” and I can’t say I disagree. But something had to be done Egypt to get things back ontrack.

    • Indeed “something” had to be done as the trend lines all predicted disaster, but IMNSHO simply unlinking the Egyptian Pound to the U. S. Dollar wasn’t it. Egypt was the bread-basket of the Roman Empire, and now with “modern” IMF imposed economic policy can’t even feed itself.

      The IMF is accountable for much of the problem because of the “austerity” and international trade policies they impose, while possibly suitable for an advanced economy, are highly toxic for an underdeveloped economy such as Egypt (and historically Greece and Argentina among many others). These policies when imposed on the new emerging economies are even worse, for example in sub-Saharan Africa and Asia.

      It appears, based on history, the policies for these countries should be mainly food self-sufficiency and where practicable import substitution.

      Exports of raw or basic commodities, possibly by tariff, should be gradually eliminated to increase domestic employment and value-added processing.

      “Comparative Advantage” is a snare and delusion for countries at Egypt’s stage of socioeconomic development in the current global economy. While economic policy based on “Comparative Advantage” *MAY* work among friendly nations at the same level of economic development, it is well to remember that this tenet of economic dogma was developed as a propaganda theme by Ricardo during the Napoleonic Wars to counter the appeal of the French “Continental System.”

      In place of the useless and in most cases counter-productive, policies of the IMF, World Bank, etc. I suggest:

      * Corruption/rent-seeking must be minimized. In many cases this is no longer seen as unusual, and is accepted as “business as usual,” Some version of the American RICO statute, including the disgorgement/recovery of the proceeds of criminal activity is needed.

      * Land/agricultural reform AND EDUCATION, stressing much more efficient use of water and land, for example hydroponics, drip (for tree crops such as date palms and olives), and center-pivot/lateral spray irrigation to minimize the ground work and labor required for irrigation, and possibly the introduction of new more productive crops such as corn (maize), and intensive chicken production. This minimizes the need for foreign exchange to import basic food.

      * Implementing over time a universal free public health service stressing immunizations and preventative health care including birth control, as it is well-know that “an ounce of prevention is worth a pound of cure.”

      * Gradually reducing the export of raw/unprocessed commodities, for example cotton. There is no reason why high quality cotton thread cannot be produced domestically at first, and then as experience is gained, woven into premium high quality Egyptian cotton cloth. The foreign exchange gained by the sale of the product will increase the further up the value-added chain the processing.

      * “Egypt for the Egyptians” must become a fundamental policy. For example Egyptian land to be legally owned by only an Egyptian citizen or Egyptian chartered corporation. and Egyptian corporations must have 51% of the voting stock owned by Egyptian citizens.

      * “Education” is critical, not only technical content, but to replace the excessively fatalistic concept that “God wills it,” with the more useful perception that while I can’t control everything, I can control most things, and will do so for the better. Adult education/indoctrination will be at least as important as childhood education.

  16. CH Tan says:

    Will Egypt be better with AIIB? Were they set up by IMF?

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