Introduction

Financial expert Hani Genena explains that the methods for valuing a currency differ based on several principles. In this article, we will explore these principles and Genena’s insights on the Egyptian pound’s valuation.

Currency Valuation Principles

Older methods for currency valuation depended solely on exports and imports, also known as the “flow of goods and services”. However, since the early 1970s, the school of financial assets or inflationary differentials has emerged. This method includes an additional factor, which is the interest rate differential. Most developing countries rely on this method to assess their currencies based on the difference in inflation and interest between them and other countries. However, with large industrial countries, the prices of their currencies are determined by many factors beyond inflation differences, as they are reserve currencies.

Egyptian Pound Valuation

Regarding the valuation of the Egyptian pound, Genena explains that it is not undervalued below its fair value. Using the method of inflation differences between Egypt and the US by comparing inflation figures from 1990 to 2023, taking into account attention to the correct figure, the pound’s valuation is very close to its fair value. Using the corresponding inflation figure in Egypt, which is 70%, to include tradable world goods, excluding goods such as gasoline and diesel, because their price did not change in Egypt last year, the dollar fluctuates between 32 and 33 pounds, which is its price at the beginning of January this year. Therefore, the pound is not undervalued.

Genena expects the dollar to fluctuate between £35 and £40 this year. He also notes that the pound is valued 15-20% higher than its value in the official market.

Egyptian President’s Remarks

Egyptian President Abdel Fattah El-Sisi ruled out a devaluation of the Egyptian pound against the dollar, citing national security concerns and the potential harm it could cause to the Egyptian people. This statement comes as Egypt awaits talks with the International Monetary Fund (IMF) on the first revision of the $3 billion financing program.

The Central Bank of Egypt recently announced that it would tie the price of the dollar to an asset package in a new index, which it did not disclose.

Conclusion

Understanding the principles of currency valuation can help us gain insight into a country’s economic health. Financial expert Hani Genena’s insights on the Egyptian pound’s valuation provide valuable information for investors and policymakers.