Interest Rates and Foreign Capital in Egypt Under British Occupation

Author:

Hansen Bent

Abstract

My archival studies in Egyptian banks reveal that nominal interest rates charged by foreign financial capital in Egypt fell strongly as compared with European rates throughout the period 1882–1914. Interest differentials declined by 2 to 2 ½ percent. This is explained by the increasing confidence of European investors with British occupation and policies. To explain the large inflow of financial capital after 1900 a sharp decline in real interest rates, related to the upsurge of agricultural prices, is posited. The case offers interesting parallels to present-day problems of excessive indebtedness in Third World countries.

Publisher

Cambridge University Press (CUP)

Subject

Economics, Econometrics and Finance (miscellaneous),Economics and Econometrics,History

Reference38 articles.

1. Owen, Middle East, p. 233.

2. The Egyptian Gazette, Alexandria, 29 Dec. 1903.

3. Albert Fishlow suggests that in estimating real returns on foreign debt, export prices should be used for deflating outpayments, import prices for deflating inpayments. (“Latin American External Debt”).

4. The concept of “real” rate of interest is not well defined. There is uncertainty about the price index to be applied. A profound problem is what should be understood by “in real terms.” Modern monetary theory often assumes that “in real terms” should mean “in terms of consumer goods.” It may be argued that for traditional societies “in real terms” should be taken to mean in terms of gold or land.

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