The purpose of this contribution is to try and pose the real problem of currency traffic: or how to differentiate two parallel markets . We see both the illegal outflows of hard currencies and the quotation of the Dinar (DZD) intimately linked to the difference between its official quotation and that of the informal market.
For instance, the Security and Customs services have lately seized large sums of foreign currency on their way out at various border points of Algeria. What is happening?
Establishing a connection between overbilling while international trading and domestically local Dinars operating agents, not connected to international networks. These illegal foreign currency transfers either directly or indirectly through overbilling do not date from today.
As it is to avoid this confusion in the calculation of the amount of the informal sphere by differentiating different ratios which give different amounts in either their relation to the gross domestic product (GDP) and the circulating money supply and the number of currencies exchanged on the parallel market. The amounts seized at ports and airports are relatively low if compared to the significant traffic, to which the government ought to seriously pay attention. Over-billing with a good part remaining abroad and the other coming into the country through different channels to feed the informally free currency markets would be the main culprit.
It is no less than a squandering of the oil-rentier annuity; thus, if a foreign exchange of goods and services were about $600 billion (billing is easier for services), and if over-billing concerns only 10%, we arrive at a total amount of 6 billion Dollars or DZD7.08 trillion.
So, what are these few million Dollars of the informal market when compared to this colossal amount, 12 times more than the accumulated deficit over several years of the national pension fund, officially estimated to DZD580 billion?
The reasons for these parallel, i.e. informal – official currency market differences would therefore be:
Fundamentally, when a state issues laws or decrees that do not correspond to the state of society, the latter gives birth to its codes which allow it to operate in a more convenient way than that required by the State without resorting to a contract of trust.
That is the theory but, on the grounds, it is the following:
- The difference is due to weak production and productivity, notably through the injection of money without productive counterparts. According to an OECD report, Algeria’s labour productivity is one of the lowest in the Mediterranean basin. This is in addition to the disproportion between public spending and the low impact on the growth rate.
- The decrease in supply explains the gap because of the global crisis, combined with a decrease in the Algerian retirees that has mostly mopped all the savings of emigration. This decline in the supply of foreign exchange has been offset by the fortunes acquired regularly or irregularly by the Algerian community locally and abroad, which have irregularly or regularly transited currencies showing that the parallel currency market is far more important than the saving of the Algerian diaspora. These amounts functioning as communicating vessels between overseas and Algeria strengthen the supply. There is, therefore, a dialectic link between these foreign currencies outflows due to overbilling and supply; otherwise the latter would be severely reduced, and the price on the parallel currency market would be higher, thus playing as a buffer to the fall of the Dinar on the parallel market.
- The demand comes from ordinary citizens and tourists, those who treat themselves abroad and the hajji because of the weakness of the currency allocation which remains very derisory. However, it is the travel agencies which, if they do not benefit from the right to exchange, also use the black market as importers of services. Most of them export currencies instead of importing them as the tourist logic would have it like in Turkey, Morocco or Tunisia.
- The high demand comes from the simple sphere as financial intermediation away from state circuits, explaining the mixed result of the measure to integrate this money capital within the real sphere.
- The difference is due to the transition from REMDOC to the CREDOC that are common administrative financial regulations, which penalised small and medium-sized enterprises and did not allow the expected curbing the increase in imports that have doubled since 2009 while strengthening the tendencies of importers’ monopolies. Many SME/SMIs to avoid supply failures have had to resort to the informal currency market. In addition to the risks of alternative financing, the Minister of Finance announced $17 billion for 2018 in the case of non-control, feeding non-productive segments, it can lead to inflation that may lead to the depreciation of the Dinar in both the official and the informal markets.
- Many Algerians and foreigners alike use the parallel market for their exchange of currencies since each Algerian is entitled to transfer only 7200 Euros per trip.
- To guard against inflation, and thus prevent any possible deterioration of the Algerian Dinar, the populations do not only chase assets in purchases of land, real estate or gold but savings placed in hard currencies. Indeed, many households have moved in the perspective of a fall in oil revenues, and foreign exchange reserves that keep the Dinar quoted at more than 70%, purchase currencies in the informal market.