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To avert the steady erosion in purchasing power, as a result of the lop-sided policies, the government has come around with large-scale spending, hiking up subsidies, etc, which again resulted in a price spiral
The sliding of the Algerian dinar against major currencies is creating panic among ordinary persons and businessmen alike. Currency traders are trying to make hay out of the situation by offering wards of foreign currencies to those willing to buy them at an exalted price to make a killing. Foreign currencies that are offered include euros, pounds, and dollars.
Algeria has been facing a slide in the value of local currency for quite some time. Coupled with the State’s inability to control the erosion of the value through effective monetary policies, the dinar loses its value day by day triggering widespread inflationary pressure and also a parallel market for the currencies. The net result is that people are losing confidence in the local currency and no longer are keen to hold on to it. Because of the unprecedented demand hike for foreign currencies, the exchange rates are demonstrating high volatility.
To avert the steady erosion in purchasing power, as a result of the lop-sided policies, the government has come around with large-scale spending, hiking up subsidies, etc, which again resulted in a price spiral. Those who have assets valued in local currencies, particularly businessmen, are busy converting them into dollars or euros for buying things in short supply including medicines.
Analysts, while explaining the degree of volatility and demand for the dollar or euro, point out that while the official rate for one euro was fixed at 145 Algerian dinars, currency traders are demanding 241 dinars.
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Algeria has long been known for having among the region’s most closed economies. The government estimates roughly USD7 billion worth of foreign currency trades hands on the country’s black market. Algeria has historically been reluctant to lower the official value of the dinar, worried that devaluation will spike prices and anger the population.
For decades, steady revenue from oil and gas allowed Algeria to import everything from toothpicks to industrial machinery. The country’s large import market concentrated economic power in the hands of a small group of businessmen known to overbill clients and stash profits abroad, including in European and Emirati banks.
