1. As the USD crisis in Egypt continues and impacts a number of commodities such as corn, rice, and sugar, it is clear that compromise solutions are no longer effective.
2. It is also clear to everyone that completely liberalizing the exchange rate is no longer a luxury, although this complete liberalization may push it to levels close to EGP 30.
3. As everyone knows, the liberalization of the exchange rate means, in particular, that the CBE does not interfere in the USD interbank market by using the reserve, except in severe cases and at very distant periods of time (once or twice a year).
4. Therefore, in order for the exchange rate not to reach record levels, the CBE may resort to what I call the nuclear option, which is:
Increasing interest rates again at a large pace (2% or higher)
Issuance of certificates by banks for a period of one year at interest rates exceeding 20% (don’t write off any number as long as it achieves the purpose)
The possibility of limiting the sale of certificates to those who give up the USD
The probability of success of the nuclear option is high due to the following:
Completion of the agreement with the fund if implemented within a few days
Slowing growth, which weakens the demand for the USD
The influx of the USD after the agreement + the slowdown in demand = the stability of the USD and its gradual decline, which will strongly encourage the demand for high-yield certificates.
It is called the nuclear option because it has severe side effects on growth, but it may end the year-long battle between the USD and the EGP.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.