Under the title: “Egypt 's Political Gamble: Devaluing
the Pound,” Steven A. Cook wrote an article that is truly perplexing. It was
published on March 15, 2016 in the National Interest.
As indicated in the title, Steven Cook is supposed to be
discussing the devaluation of the Egyptian currency, which is an economic
concern. But instead of talking economics, you'll find that the author dragged
into his presentation superfluous items and used them to beat up on Egypt . For
example, instead of discussing the decision of the central bank from an
economic point of view, he launched a diatribe against a field marshal that
died half a century ago. He happens to be a man whose nephew is the current
head of Egypt 's
central bank. The author failed to make a direct connection between the
military man of the 1960s and the economist of 2016 because there is none. The
only thing motivating the writer has been the desire to denigrate Egypt .
Reading the article, you immediately realize that Cook is
suffering from the same debilitating Jewish disease affecting the editors of
the New York Times. That is, when writing about the Arabs, those sickos
automatically trigger an internal algorithm that prevents them from presenting
reality as it is. Instead of doing that, they twist and spin every piece of
information at hand in such a way as to make two points: (1) The only thing
that the Arabs do rationally and deliberately is to plan for and inflict
violence on others. (2) Anything else the Arabs do, they do it because they are
scared or pressured or told to do it.
Look how our author begins the article: “I received a
message with just two words: “They caved.” That is, he says that the Egyptians
caved to some nebulous force that wanted them to devalue their currency at a
time when they did not want to. Well, let me say this: Never before was the
devaluation of a currency discussed in this fashion. But then again, never
before was someone afflicted by that nasty Jewish disease.
To understand what the Central Bank of Egypt (CBE) was
facing and how it reacted, we need to know two things about the currencies of
sovereigns. First, they have an inherent value that the central bank tries to
maintain as stable as possible. Second, they have a relative value attributed
to them by the foreign exchanges. The best way to discuss all that is by
looking at two actual examples.
A currency is a commodity like any other. When used in the
jurisdiction that prints it, its stability is determined by the fiscal policy
of the government, and the monetary policy of the central bank. The measure of
that stability is gauged by the overall inflation rate. Speculators, fund
managers and all those who are not satisfied with the economy's rate of growth
have a bag of techniques they can use to create bubbles in stocks, real estate,
commodities and many others, thus make more money than they have the right to.
When the speculators and the fund managers operate on the
international stage, they have all of that at their disposal, and also the
currency exchanges. Like vultures, they look for an economy that is vulnerable
because it is going through a transition, or that it is experiencing a
bottleneck. When they spot one, they sell – even short sell – its currency so
as to cheapen it.
That's what happened to Britain at one time, and the
attacker selling the British pound was George Soros. The more that the central
bank of Britain
defended the pound using its reserves of dollars, the more that Soros sold the
pound, pocketing the dollars. When the pound reached rock bottom, Soros used
the dollars he just pocketed to buy it back at a cheaper price. He thus made a
profit of a billion dollars in one day at the expense of the British Central
Bank.
That's an example where the central bank lost to the
vulture. A happier example is the one that happened to Canada . Sensing
that the vultures were testing the waters to see how far they can go before the
central bank of Canada will run out of reserves defending the Canadian dollar,
the Finance Minister “played dead” while quietly talking to other central banks
from Tokyo to Paris to arrange lines of credit that were practically unlimited.
He let the vultures sell the Canadian dollar till they ran
out of reserves and credits. By now, the Canadian dollar was so cheap; the
Finance Minister swooped down on the market and bought all that was available
without putting much of a dent in the lines of credit that were extended to him
by the other central banks. Some of the vultures went bankrupt; the others
never tried that stunt again on Canada .
What happened to Egypt was something close to that
but not exactly the same. What the foreign vultures planned to do was invest in
the country's anticipated explosive growth, buying stocks and bonds and paying
for them in Egyptian pounds. They had the dollars that the country needs to
purchase goods from abroad, and they wanted to exchange them for as many pounds
as possible. The way to do that was to sell – even short sell – the pound to
force the central bank to devalue it.
Unable to set-up lines of credit with other central banks as
did the Canadians, and keen not to duplicate the British experience, the CBE
used a strength it knew it had but was neglected up to now. It is that the
country was awash with dollars and other hard currencies, money that was kept
in bank accounts and with the currency exchange firms. Added to this was
another Egyptian quality sometimes used as a tool to achieve impossible goals.
That would be the famous Egyptian patience.
Because the foreign vultures were eying the Egyptian stocks
and bonds while shorting them together with the pound, the CBE saw fit to
quietly borrow or buy dollars at a high price from the locals while encouraging
them to buy the stocks and bonds that were selling cheaply. Believing that Egypt will
never devalue, the foreigners began to lose patience, and they started to sell
at fire-sale prices what they were hoarding.