Tuesday , June 22 2021

5 Arab countries liberalized their currencies … How were the experiences of “floating” in them?



Five Arab countries announced that their currencies were totally or partially “floated” for the past five years, in an attempt to remedy their economic and financial crises.

According to Anatolia, the experiences of total or partial flotation in the five countries were not encouraging, as this step had serious consequences for its citizens, especially vulnerable and low-income groups.

Lebanese are increasingly concerned in the recent period that the Central Bank is floating the pound exchange rate, under pressure from the International Monetary Fund, which could mean a further fall in the local currency and rising prices.

Egypt

Egypt was the first Arab country to abandon the fixed exchange rate of the pound against the dollar and completely liberalized the exchange rate, leaving pricing completely to the mechanism of market supply and demand.

One of the immediate consequences of the decision was a sharp drop in the pound exchange rate, which went from $ 8.8 to $ 18, weakening the country’s foreign exchange reserves and, therefore, the its ability to obtain basic commodities, mostly imported from abroad. .

Inflation rates in Egypt rose in the months following the decision to float to more than 35%, at a time when Egyptian deposits denominated in local currency were eroded due to falling exchange rates.

Here

Yemen followed the example of Egypt and completely liberalized its currency in 2017, in an action aimed at bridging the gap between the official exchange rate, set at 250 rials per dollar.

As a result of the change, the price of the local currency fell, in a few hours, to exceed 370 rials to the dollar, which is the current exchange rate on the black market.

Today, after almost 4 years of floating, the exchange rate of the riyal varies against the US dollar, but on average from 850 to 900 rials in the temporary capital Aden, amid a shortage of foreign exchange.

Countries such as Saudi Arabia and the United Arab Emirates intervened with the Central Bank by pumping dollar-denominated deposits to preserve the cohesion of the riyal, but the ongoing war and lack of stability lost most of the country. of currencies.

Morocco, west, sunset

After the experiences of Egypt and Yemen in the full liberalization of their currencies and the popular protests that accompanied them, the Moroccan government chose a gradual floating of the dirham, as one of the terms of a stipulated reform program. by the International Monetary Fund to provide assistance. in the country.

In 2018, the Moroccan government decided to allow the dirham exchange rate to have a margin of 2.5 percent, up or down, against a basket of euro currencies (weighing 60 per cent). hundred) and the US dollar (weighing 40%), as a first step for a complete float over a ten-year period.

In March 2020, Morocco began a second phase of dirham flotation, extending the range of motion to 5%, up or down.

Morocco did not witness strong confusion in the partial flotation process, because it was not a priority for the local economy, which enjoyed a certain degree of stability in trade activities and the balance of payments, and availability. of the country of a safe currency block. .

Iraq

In the second half of 2020, the Central Bank of Iraq faced a waste of foreign exchange reserves, as a result of which black market speculators took advantage of the difference between the official rate (1183 dinars per dollar) and the parallel market price (1490). lunches per dollar).

Under this pressure, and pressure from international institutions, the Iraqi authorities last December produced a partial float of the currency, reducing the price of the lunch to 1460 against the dollar, with the aim of eliminating the black market.

The Iraqi Finance justified the reduction in the value of the dinar, in the face of the financial crisis to which the country is exposed, after the fall in selling prices of oil to world markets, due to the repercussions of the “Crown” virus.

And soon the International Monetary Fund announced its support for the decision to reduce the value of the Iraqi dinar against the dollar, as part of a plan for financial reforms in the country suffering from a stifling economic crisis.

Sudan

Sudan was the last Arab country to abandon the fixed exchange rate of its national currency. Last February, the Central Bank of Sudan introduced a partial floating of the local currency, a step almost identical to the Iraqi measure.

As a result of the Sudanese Central Bank’s decision to “unify the exchange rate”, the price of the local currency fell from £ 55 per dollar (the official rate so far) to £ 370, while reaching an average of £ 379 in weekly transactions.

A statement from the Central Bank last month said: “The decision aims to unify and stabilize the exchange rate, transfer resources from the parallel market to the official market and attract remittances from Sudanese working abroad. “.

The Sudanese Central Bank’s measure was preceded by the unification of the exchange rate, gradually increasing the subsidy for fuel and other commodities, in the implementation of the demands of the International Monetary Fund as a condition to support the program of reforms of Khartoum.




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