5 Pounds – Egypt

In 1981, Egypt's currency situation was characterized by a complex and strained system of multiple exchange rates, a legacy of the infitah (economic opening) policies begun under President Anwar Sadat in the 1970s. The official exchange rate was fixed by the Central Bank of Egypt at a highly overvalued level of approximately E£0.70 to the US dollar. This rate was reserved for government transactions, essential imports like food and medicine, and debt servicing. However, a parallel "free market" rate, which reflected true scarcity and demand, operated at nearly E£1.40 to the dollar, effectively creating a 100% premium. This dual system led to significant distortions, encouraging black-market activity, capital flight, and rampant rent-seeking behavior as access to cheap foreign currency at the official rate became a source of privilege and corruption.

The overvalued pound placed severe pressure on Egypt's balance of payments and foreign reserves. It made Egyptian exports uncompetitive on the global market while making imports artificially cheap, discouraging domestic production and leading to a growing trade deficit. Furthermore, the government's heavy subsidies on basic commodities, funded by borrowing and oil revenues, created a massive fiscal burden. The situation was exacerbated by a decline in key foreign currency earners; oil prices had softened from their late-1970s peak, remittances from Egyptian workers abroad were often funneled through the black market, and the tourism sector was still recovering from regional instability.

President Hosni Mubarak, who assumed office in October 1981 following Sadat's assassination, inherited this precarious monetary environment. While immediate, radical reform was politically risky, the unsustainable currency regime was a central concern. The multiple rates and overvaluation were widely recognized by international lenders, including the International Monetary Fund (IMF), as a critical flaw needing correction. Thus, in 1981, Egypt stood on the brink of inevitable economic restructuring, with a major devaluation and a move toward exchange rate unification becoming unavoidable prerequisites for stabilizing the economy and securing vital external financing in the years to follow.