EGYPT - Jan. 30 - New Exchange System.

The Central Bank begins a new exchange rate mechanism for the pound which will allow it to fluctuate within a narrow band set by the bank. The pound has slid against the dollar since the Central Bank introduced more flexibility in May 2000. Central Bank Governor Ismail Hassan denies the mechanism would amount to fixing the rate and says market forces would be the basis for setting it. The bank would calculate its rate "according to a weighted average of all transactions in the market by all players over the past three weeks". Banks and exchange rate bureaux would be allowed to quote rates up to one percentage point above or below the Central Bank rate. Today's rate is set at E[pound]3.85 to the dollar. Hassan says the bank would review the rate periodically and would intervene as a buyer or seller where necessary. (The pound had slid from E[pound]3.40 to the dollar in May 2000, when the fixed rate was abandoned, to lows of E[pound]4.09 to the dollar earlier this month. It rallied at about E[pound]4 when the government intervened to shut down a number of money changing companies which it accused of speculating on the currency). Youssef Boutros-Ghali, the economy minister, dismisses fears that the new mechanism would lead to the emergence of a black market. He says: "We thing the system will reflect true market value, so there should be no black market". (Analysts are sceptical about official explanations for the recent volatility in the value of the pound, which the government has attributed to speculations of moneychangers. "It's to do with the policy frame work as a whole, the speed of privatisation and the clarity or lack of clarity with which the exchange rate policy is implemented", says a London-based analyst. The analyst describes the new mechanism as "clumsy". But Ahmed Galal of the Egyptian Centre for Economic Studies says it is "a move in the right direction", which would inject clarity into the market. He says the government allowed the pound to slide, and that the new rate reflects the decline of recent weeks. But he criticises the band as too narrow and predicts frequent interventions by the Central Bank).