Exchange rate movements are the talk of the town. Everybody wants to be updated with the dollar price in the parallel market. Before the regular meeting of the Monetary Policy Committee (MPC), rumors started to spread widely about another devaluation of the Egyptian pound. However, people usually mix between four economic terminologies. Devaluation is not similar to depreciation and is different from flotation and correction.

Most of the developed countries follow a floating exchange rate system. The market dynamics generate automatic and flexible changes in the value of the currency. Central banks do not control the price of the local currency compared to other currencies. Depreciation occurs when the value of the national currency decreases under the floating exchange rate system.

On the other hand, when the country is following a fixed exchange rate system, the central bank became involved in determining the exchange rate. This is mainly the case when the country wants to achieve specific goals, such as currency stability and inflation control. “Devaluation, the deliberate downward adjustment in the official exchange rate, reduces the currency's value,” according to the International Monetary Fund (IMF).

Moving from a fixed exchange rate system to a floating system is called flotation. Egypt witnessed four main devaluations during the past 33 years. Yet, we did not have a real full flotation until now. What happened in between these four devaluations is called correction. The correction usually happens when there is a gradual change in the currency value with no hard shocks.

In 1990, the Egyptian pound witnessed the first devaluation in light of Egypt’s program with the IMF. The exchange rate recoded EGP 2 to USD, up from EGP 1.1 per USD. The second devaluation was in 2003. It was under another deal with the IMF. The Egyptian pound’s value against the US dollar decreased from EGP 3.85 against USD to EGP 5.861 per USD in 2003 and EGP 6.194 against USD in 2004, before declining to EGP 5.791 in 2005, according to the Central Bank of Egypt’s (CBE) data.

In 2016, a third devaluation took place. Again, it was related to a program with the IMF. The exchange rate dropped by around 48%. The Egyptian pound decreased from EGP 8.85 versus USD to EGP 18.8 per USD before it witnessed a stable pattern moving within the range of EGP 17.5-15.6 against the dollar between 2017 and 2021. In March 2022, there was another correction as the exchange rate recorded EGP 18.2 verus USD. The fourth devaluation took place in October 2022, when the exchange rate exceeded EGP 20 per USD for the first time and kept moving until it reached EGP 30 against USD in January 2023. Since then, the official price has not reached EGP 31 against USD.

All the above exchange rates are the official rates announced by the CBE. The price in the parallel market and the gap between the two prices is a different story to be told later.