The Central Bank of Egypt needs to communicate much more clearly its policy intentions going forward after it announced a switch to a more flexible exchange rate regime.
Its press release on the move stated that it is aiming to create "a conducive investment climate to unleash the potential of the Egyptian economy".
On March 14, 2016, the CBE decided to adopt a more flexible exchange rate regime that better reflects the underlying forces of supply and demand and, in turn, lead to greater transparency and foreign exchange liquidity through attracting greater investments and the correction of asset prices.
It is difficult to see what is the value of such messages.
Lars Christensen, writing on his The Market Monetarist blog:
This is yet another example that the ‘dollar bloc’ is gradually falling apart ... This in my view certainly is good news.
The big challenge for Egypt will now be what it should be doing next. It would certainly not be a good idea just to continue with a “new peg” to the dollar.
Correct, Egypt first needs to say what it does, and then - crucially - do what it says.