The pound traded at a fixed rate of 3.4 to the dollar for years until the middle of 2000. After several adjustments, it dropped to about five to the dollar before the authorities removed the peg in January 2003.
After what analysts called a managed float, the pound has been trading at 6.18 to the dollar at banks, but seven on the black market, a difference of 13%.
The float has spurred double-digit inflation that has hurt consumers, although the government has sought to maintain subsidies for food staples like flour, cooking oil and sugar.
By floating the currency, the government bet on closing the gap between the official and black market exchange rates, but informal trading is as busy as ever.
Financial analysts on the Cairo stock market said the real rate should be around nine pounds to the dollar.
Not only are Egyptians buying up dollars, they are also
speculating on the new Iraqi dinar in US-occupied Iraq and the Libyan dinar, which has been rising on the black market as Tripoli's international isolation wanes.
The Egyptian authorities have been forced to ban banks from dealing in Iraqi dinars and warned against the risks of speculating on a soft currency, but their efforts have been in vain.
Rewards of policy
But officials say Egypt is still starting to reap the rewards of its new monetary policy, which was welcomed by the International Monetary Fund (IMF).
Prime Minister Atef Ebeid said the economy beat forecasts by growing at 4.2% between July and September 2003. He predicted the rate would be between four and 4.5% for the entire fiscal year ending in June.
He pointed to growth in the commodities market - including oil
and gas - and agriculture sectors, and added that job hirings were increasing in so-called export zones.
The IMF forecast in a report in September that Egypt would record growth of 2.8%in 2003 and three percent in 2004, or much less than the six percent needed to absorb unemployment.
Not only are Egyptians buying up
dollars, they are speculating
on Iraqi dinar and Libyan dinar.
Fears were growing nonetheless of dollarisation despite the state's broad means to prevent this from happening.
However, the central bank as well as private and state-owned banks appear not to have agreed on the remedy.
Bankers said they believed the central bank would order all banks to give better interest rates for pound accounts than dollar accounts, even though such a move is feared by most commercial banks backed by big business.
Banks awash with pounds
They fear it will not only raise interest rates, but also block
their investments, halt the sputtering economic recovery and worsen unemployment, which some experts believe is as high as 15%.
Banks, which say they are awash in Egyptian currency, simply do not want to attract more pounds.
Former Central Bank governor Ali Negm, who backs gradually boosting returns on the pound to 15 percent from the current rate of eight and nine percent, said it was necessary first to cut bureaucracy in order to revive growth.