Causes, Measures and Impact of State Intervention: The Financial Sector and the Egyptian Example

This paper discusses the reasons for state intervention in the financial sector in Egypt and analyzes major tools of intervention such as setting ceilings on interest rates, imposing high reserve requirements, developing directed credit schemes and intervention in the portfolio composition of banks, in addition to the extraction of revenues from inflation tax. The main consequences of state intervention in the financial sector are investigated, including the thriving of informal finance, the rising use of inflation hedges, currency substitution and capital flight. The paper also discusses the structural and institutional problems of the banking system and securities market in Egypt, caused primarily by repressive state intervention.