Egypt has officially stopped using the US dollar in trade, a move that could have significant implications for the global economy and geopolitics.
On February 15th, 2024, Egypt announced that it would stop using the US dollar in all its trade transactions with other countries. Instead, it would use a basket of currencies that reflects its trade patterns and preferences.
The basket would include the euro, the Chinese yuan, the Russian ruble, the Turkish lira, the Indian rupee, and the African franc. Egypt said that this decision was based on economic rationality and sovereignty, and that it would enhance its trade competitiveness and financial stability.
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Egypt is one of the largest economies in Africa and the Middle East, with a GDP of about $360 billion and a population of over 100 million. It is also a key ally of the United States in the region, receiving about $1.3 billion in military aid annually.
However, Egypt has been facing economic challenges in recent years, such as high inflation, public debt, and currency devaluation. The COVID-19 pandemic has also exacerbated these problems, as tourism and remittances, two major sources of foreign exchange, have declined sharply.
To address these issues, Egypt has been pursuing a series of reforms, including cutting subsidies, raising taxes, and liberalizing its exchange rate regime. In 2016, Egypt floated its currency, the Egyptian pound, allowing it to depreciate by about 50% against the US dollar.
This was done to attract foreign investment, boost exports, and secure a $12 billion loan from the International Monetary Fund (IMF). However, this also increased the cost of imports, especially of essential goods such as food and fuel, which are mostly denominated in US dollars.
To reduce its dependence on the US dollar and diversify its foreign reserves, Egypt has been exploring alternative currencies for trade and investment. In 2019, Egypt signed a currency swap agreement with China, allowing it to exchange Egyptian pounds for Chinese yuan.
This enabled Egypt to increase its trade with China, its largest trading partner, without using US dollars. Egypt has also been strengthening its ties with other emerging markets, such as Russia, Turkey, and India, and seeking to join regional economic blocs, such as the African Continental Free Trade Area (AfCFTA).
The move has been met with mixed reactions from other countries. Some have welcomed it as a sign of Egypt’s economic independence and diversification. Others have criticized it as a challenge to the US dollar’s dominance and a threat to the global financial system. The United States has expressed concern over Egypt’s decision and urged it to reconsider.
The US said that it would review its bilateral relations with Egypt, including its military aid and security cooperation. The US also warned that Egypt could face sanctions and isolation if it continued to defy the international monetary order.
Egypt’s decision to stop using the US dollar in trade is a bold and unprecedented one that could have far-reaching consequences for itself and the world. It could benefit Egypt by reducing its exposure to exchange rate fluctuations and enhancing its bargaining power with other countries.
It could also inspire other countries to follow suit and challenge the US dollar’s hegemony. However, it could also entail risks and costs for Egypt by alienating its traditional allies, inviting retaliation from the US, and disrupting its trade flows and financial markets.
