Algerian Dinar : A Short history
Set up in 1964, the DZD was on a par with the French Franc until 1973. Since 1974, the value of the Dinar has been set following the evolution of a basket of 14 currencies. We have seen depreciation between 1986/1990 of 150% from DZD4.82 to DZD12.191 a US Dollar, followed by a second one, of the order of 22% in 1991. With the cessation of payment in 1994 and following the rescheduling and conditions imposed by the IMF, there was a new devaluation of more than 40% followed by its commercial convertibility in 1995/1996.
The evolution of the official exchange rate has evolved from 2001 to December 12, 2016, thus:
- 2001 – DZD77.29 a Dollar
- 2005 – DZD73.35 a Dollar
- 2008 – DZD64. 58 a Dollar
- 2010 – DZD74.39 a Dollar
- 2015 – DZD100.46 a Dollar
On December 12th, 2016, the rating of the Dinar got close to DZD111 a Dollar and DZD118/119 a Euro at the official rate, a difference of 57% with reference to the parallel market and slippage of about 60% from the 2010s.
This accentuates the inflationary process, with the risk of two-digit inflation by end of 2016, due to the fact that 70% of the needs of households and of public and private businesses are met by imports which with the falling price of oil are making the State no longer able to subsidize as it did in the past. The value of the Dinar that is a function of the trust and a productive economy, which in the case of Algeria being an economy fundamentally of a rentier type, will contradict the basic laws of the economy where any devaluation should in principle boost exports. Paradoxically, we see that when the price of the dollar decline and the rise of the Euro, the Bank of Algeria make the Dinar slide (whilst avoiding to talk of devaluation) for political reasons.
Why then this accounting trick? The answer or main reason could be that by devaluing the Dinar rate to the Dollar, is the artificial increase in oil tax that fluctuates depending on the price of a barrel, between 60 and 70%. Because oil and gas revenues are converted into Dinars, together with Customs taxes on hard currency imports being calculated in Dinars, it would only lead to a definite evaluation. All this hides the importance of the budget deficit and thus the effectiveness of the State through its public expenditure budget and artificially inflates the Regulatory Revenue Fund as calculated in Algerian Dinars.
Inflation is the result, a certain distrust towards the Algerian Dinar that is officially administered and therefore disconnected with the real world as represented by the parallel market. In General, both foreign and local investors are wary of an administered low currency. The real value of a currency, which is only a medium of exchange could be interpreted as a nominal value adjusted for inflation.
Hoarding would not create value. It is the work through continuous innovation, whilst adapting to this ever more interdependent world, turbulent and in the perpetual upheaval that is the source of wealth of a Nation. The value of money depends on the confidence in that economy and all related politics of production and productivity, as shown by the Classics. In fact, the essence of this situation lies in the dysfunctions of the different structures of the State because of its excessive intervention that distorts the market rules forcing households and operators to circumvent them.
So when the authorities immoderately tax and regulate excessively or by declaring illegal the activities of the free market, it skews the normal relations between buyers and sellers. In response, buyers and sellers naturally seek ways around all Governments imposed obstacles.