EGYPT CURRENCY CRISIS: ANALYSIS OF THE CAUSES

Currency crisis is a currency market disturbance where speculative foreign exchange strike leads to a devaluation or comes to a point when the authorities sell their foreign exchange reserves or raise interest rates to defend their exchange rate. Currency crises are usually defined in the context of the financial crisis, including a ban and debt crisis (Claessens and Kose, 2013). Considering the fact that Egypt is a small and open economy, it was hit by a sharp decline in food, energy and other commodity prices in 2007/2008. Given that the middle group of Egyptian society spends about 45% of its income on food products, this brought economic policy under tough pressures and demanded a quick response to mitigate the shock in order to maintain social and economic stability. Evaluation of existing crises can explain the disruptions in the financial system or collapse of the exchange rate. Also, here we determinate the reasons and implications of Egypt currency crisis, as the crucial role of the foreign exchange reserve for a country in such a circumstances.