The central bank of Egypt said auctions on foreign currency would start on Sunday to conserve its reserves that have shrunk to a critically low level. This points to an economic crisis that is deepening more and more as Egyptian President Mohamed Mursi attempts to maintain calm politically.
The central bank posted the announcement on Saturday on its website only two hours after Mursi gave a speech over policy and declared that the economy in the country was starting to show signs of improving.
An economist outside of Egypt said this was a massive setback for the new administration, adding that if the Egyptian pound no longer could be freely convertible it would undo over eight years of effective and successful management of currency.
The Egyptian central bank has spent over $20 billion in its foreign reserves in order to support its pound since 2011 during the huge uprising that overthrew Hosni Murbarak and scared away foreign investors and tourists.
The announcement made on Saturday underline the grand scale that Mubarak’s successor was facing. Mursi’s administration has grappled with the political crisis’ fallout that was ignited after he pushed through a new constitution that was written by his allies who are Islamists.
Political wrangling along with street protests that at times have been violent in the past month, prompted investors as well as citizens to rush to switch their Egyptian pounds into another foreign currency as they have become concerned the new government would devalue or start capital controls.
The central bank allowed its pound to fall to an eight-year low in value to just 6.188 against the U.S. dollar Thursday. The bank urged people in Egypt on Saturday to rationalize their use of any foreign currency and not make speculations against their pound.