At first glance, this ground floor flat in a small apartment house overlooking Algiers is not very impressive. Yet those barred windows which never open and the forged iron gate behind a steel security gate indicate the sensitive character of the locale. Here, as in many other places in the Algerian capital, you can exchange dinars, the local money, for foreign currencies, mainly euros. The amounts exchanged may be as much as a hundred thousand euros or more. People from all walks of life patronize this flat, including high-ranking officials and former ruling politicians. Officially, it does not exist, the currency market has not been liberalized in Algeria. Unofficially, the authorities are perfectly well aware of its existence just as they know about the activities of the curbside money changers downtown. As the dinar is not a convertible currency for private individuals, the latter are forced to turn to the black market to buy dollars or euros. And despite episodic crackdowns, the Algerian government more or less tolerates this parallel system which is worth nearly five billion dollars per annum, according to an unofficial estimate.
A More Advantageous Parallel Circuit
The phenomenon goes back a long way. Already in the 1970s, on account of the foreign exchange restrictions, Algerians did not go through local banks to buy the francs they needed for their trip abroad and the purchases they made there. As the demand was considerable, the unofficial exchange rate was higher and higher than the Bank of Algeria’s official rate. At the beginning of the eighties, when one dinar bought one French franc at the official rate, the black market rate in the back streets around Port Said square in Algiers was three for one. It was because of this differential that Algerian emigrants who needed to convert their francs preferred to deal with the parallel market rather than the banking system (some officials even accused the emigrants and Western expatriates, particularly French aid workers, of being responsible for the prolonged existence of the black market). Thus, of the three Maghreb countries, the Algerian diaspora is the one that sends the least amount of money home via regular bank transfers. Today, the rate of exchange with the Bank of Algeria is 142 dinars for one euro (113 for a dollar) while the money changers around the country sell one euro for 208 dinars (a dollar for 171).
Bypassing the Currency Exit Limit
But then who buys foreign currency in Algeria? Just about nearly everybody. Anyone going abroad is practically obliged to do so, because the dinar is still not freely convertible for private individuals, and each citizen is granted a yearly allowance of only 100 euros for travel expenses, while their Tunisian and Moroccan neighbors are allotted respectively 3,000 and 3,500 euros. The problem also concerns businessmen, entrepreneurs and shopkeepers. The dinar is, of course, convertible for commercial operations, but the current legislation and increasing administrative restrictions due to the government’s determination to diminish capital outflows, prompt the persons concerned to resort to the parallel market. In early February, the local press made much of the mishap which befell an Algerian jeweler, hospitalized and then arrested in Turkey for having tried to smuggle into the country 144,200 euros concealed in his rectum. Actually the poor fellow was not trying to evade Turkish laws but simply get around the Algerian legislation which limits currency outflows. Another symptom of the vitality of the parallel market was the announcement in February by Djamel Benbelkacem, vice president of the Bank of Algeria, that all eighty-eight bureaux de change licensed by the authorities had closed down . . . so unprofitable had they become compared with the margins realized on the parallel market!
Rumours of Devaluation
The disparity between the official and parallel rates is very likely to grow. For several months now there have been more and more rumors of devaluation of the dinar, fueled by declarations from officials like Mohamed Benmeradi who said that the official exchange rate does not reflect the actual parity between the dinar and foreign currencies. Faced with the drop in oil prices and the country’s declining foreign exchange reserves (less than 100 billion dollars), authorities consider putting more banknotes in circulation to absorb the budget deficit. A prospect which has already made the dinar lose 22% of its value (at the official rate) over the last year. By converting their assets and savings into foreign currency on the black market, Algerians are anticipating a bigger devaluation which would penalize their buying power. The International Monetary Fund (IMF) is urging the Algerian government to allow a “greater flexibility of exchange rates,” in other words, legalize the parallel circuit and let “the market determine the value of the dinar,” but for the moment Algiers feels this option would be “premature.”