Yesterday, the Egyptian pound was being offered at 6.5 to the dollar at money changers in Cairo, the lowest level in eight years and about seven percent lower than it was at the start of December. Egyptians with long memories, remembering past devaluations of the currency, have rushed to buy dollars, exacerbating the problem and leading the government to impose new currency controls, including a $30,000 daily limit on foreign currency withdrawals and a ban on carrying more than $10,000 out of the country.
Neither those efforts, nor a new currency regime that many local economists believe would lead to the eventual devaluation of the pound, have done anything to stem the bleeding. And that's driving up costs for Egyptian industry, from furniture manufacturers to chemical plants that rely on imported, dollar-denominated raw materials.
A recently laid-off civil engineer, who was working on a housing project in the greater Cairo area, says his project was shut down due to not just rising material costs but also difficulty obtaining financing from banks worried about what might come. "There's uncertainty in the financial picture, worries that the pound could fall much further, and worries that demand for new homes decline as incomes are hit," he explains, asking that his name not be used. "This isn't a healthy environment to spend money and everyone knows that – businesses, and average people."
Cutting subsidies is always dangerous in countries like Egypt. The Jan. 25 uprising against Hosni Mubarak in 2011 was in some ways driven by a spike in global commodities prices, and was the biggest upheaval in the country since January 1977. What happened in 1977? Then-President Anwar Sadat cut government food subsidies, sending hundreds of thousands of angry Egyptians to the streets, with rioting and violence in multiple Egyptian cities. President Sadat backed down three days later.