- Egypt abandons its longtime fixed-exchange rate policy, floating the pound, and plunging the currency value by 60%
- Nigeria’s devaluation of the naira was widely expected, but was executed with no plan to cushion the impact on Nigerians
- Milei devalued the Argentinian peso right almost immediately but is now trying to avoid a second devaluation – the odds are against him
Pounded Pound
On 6 March, Hassan Abdalla, the stone-faced governor of the Central Bank of Egypt (CBE), declared that the CBE was abandoning its longtime fixed-exchange rate policy and floating the pound. The Egyptian currency promptly lost 60% of its value, plunging from 31 EGP per dollar to 50, in line with the black-market rate.
President Abdel Fattah El-Sisi had long resisted calls to liberalize the pound. Since he took power in 2014, the CBE tried four times to save its policy regime with one-off devaluations — none of which stemmed the pound’s slide.
Naira Nosedives
Across the continent in Nigeria, President Bola Ahmed Tinubu has focused his efforts, since taking office in May 2023, on cleaning up the messes of his predecessor, Muhammadu Buhari. These included measures that long dissuaded foreign investment — including the naira’s seven exchange rates.
Late last year and early this year, Central Bank of Nigeria (CBN) Gov. Yemi Cardoso collapsed the rates in two devaluations that brought the naira in line with the parallel market rate. The devaluations were widely expected, coming after years of pressure from the IMF and World Bank, and praised in some circles for their swift and decisive execution.
But along with swift execution came a lack of preparation that has caused havoc (see our 8 March Letter from Lagos). Tinubu’s government had planned no palliative programs to cushion the devaluations’ impact on Nigerians, and has had to rush to catch up. (Even Sisi had thought of this: to avoid pushing Egyptians over the brink, he hiked public salaries and accompanied the devaluation with an interest rate hike to cool inflationary pressure.)
Peso Plummets
Their troubles with the naira have many Nigerians making parallels to the most notorious case of hyperinflation — Argentina — just as that country embarks on a new round of experimentation with its peso.
Three days after taking office in December 2023, libertarian President Javier Milei devalued the nation’s currency by 54% as part of a batch of shock therapy for an economy that has been stagnant for more than a decade. The export-oriented farmers who anchor Argentina’s economy are typically the strongest advocates for a weak peso, since it allows their dollar earnings to go farther at home.
Milei, like former President Mauricio Macri and unlike former President Cristina Kirchner, has typically sided with agricultural interests.
Almost 100 days into his government, however, Milei is hoping to avoid a second devaluation, which could further fuel inflation for the many Argentines outside the farming sector. Already, inflation has averaged 70% in the three months since his first devaluation, and Milei’s approval rating now hinges on his ability to rein in price increases.
Losing Lira?
As Egypt, Nigeria and Argentina muddle forward after their devaluations, it’s worth remembering that their cases are just a few among many. In fact, we expect that next month, after sensitive local elections, Turkey may be next to implement a major devaluation and raise interest rates in hopes of staunching inflation and stabilizing its economy.
How will these countries navigate these devaluation scenarios?
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