In 1835 Muhammad Ali introduced as a monetary reform a bimetallic currency system. As a result of the decline of the price of silver and the inflation associated with it, in 1885 the government switched to the gold standard. Subsequently, and up to 1948, the country's currency was pegged to the British pound sterling, then the dominant world currency. In 1949 authorities fixed the Egyptian pound with the International Monetary Fund (IMF--see Glossary) at the rate of ŁE1 = US$2.87. In May 1962 a uniform premium was applied to most foreign exchange transactions that in effect made ŁE1 worth US$2.30.
From the mid-1960s onward, many experts were convinced that the Egyptian pound was overvalued, adversely affecting the balance of payments by making exports less competitive and imports artificially cheaper. Needing foreign currency in the late 1960s, the government applied a premium rate of ŁE1 = US$1.70, which became known as the parallel market, to a range of transactions. The rate lasted until 1975.
After 1975 a complex, multiple-rate exchange system emerged, a manifestation of the infitah and the tinkering of Mubarak's regime. It continued in 1990 to be a subject of negotiations between the government and the IMF (see Debt and Restructuring , this ch). Three major rates dominated the system: the rates of the Central Bank, the rates of the "free" commercial banks, and the rate on the free market, all of which tended to fluctuate. The three rates were converted into a weighted average to calculate such entities as GDP and GNP in United States dollars.
The Central Bank rate had been fixed at ŁE1 = US$1.43 since 1979. This rate was used for oil and cotton exports, Suez Canal fees, imports of essential foodstuffs and agrochemical inputs, and a large segment of public-sector capital transactions and bilateral payment agreements. The arrangement kept the subsidy bill nominally lower than its actual costs in world market prices. The parallel market rate was institutionalized in 1987, as part of an agreement with the IMF, into a private commercial bank rate. About forty banks set the rate on a daily basis to reflect the changing value of the currency in the free market; hence the rate was partly free and partly fixed. It covered part of workers' remittances and tourist receipts, some export items, and certain private- and public-sector imports that did not fall within the Central Bank rate. The free-market rate covered part of workers' remittances as well as tourist receipts and some export receipts. It was tacitly approved by the government but remained illegal. The presence of commercial bank rates and free-market rates reflected the weakening hold of the government on the exchange system.
Data as of December 1990