The currency black market in Algeria has been in free fall since December 10, but it is not about to collapse, according to two economists interviewed by TSA. This Sunday, December 29, the euro is quoted at 242 Algerian dinars each on the black market.
On December 9, it reached a historic peak at 262 dinars, before beginning its decline, dragging down the dollar, the second most traded foreign currency on the Algerian parallel market after the euro.
This Sunday, the dollar is offered for sale at 236 dinars compared to 248 dinars on December 9, the day after the decision of the President of the Republic to increase the tourist allowance for Algerians to 750 euros against the equivalent of 100 euros currently.
Algeria: will the black currency market disappear?
To this question, economist Brahim Guendouzi answers in the negative. “The current drop in prices on the informal currency market, the functioning of which remains specific, can only be temporary, as commonly happens on most foreign exchange markets, when there is a combination of several parameters leading to either a trend bearish, or the opposite, an upward trend,” explains this economics teacher at the University of Tizi-Ouzou in an interview with TSA.
On the collapse of rate of the euro and dollar against the Algerian dinar since December 9, he explains it by three reasons. “In the more specific case of Algeria, three reasons can be pointed out as likely to influence the evolution of currency prices, and subsequently on the evolution of the informal market,” notes Brahim Guendouzi.
• The first reason to “relates to Algeria’s commitment, particularly within the framework of the Financial Action Group (FATF), to firmly combat capital flight and money laundering.
“The strengthening of customs controls at border level, particularly at airports, and the obligation to declare currencies both on exit and on entry. This is accompanied by the implementation of Ordinance No. 96-22 of July 9, 1996, modified and supplemented, relating to the repression of infractions of the legislation and the regulation of exchanges and movements of capital to and from the 'foreign,' he explains.
Brahim Guendouzi adds that the recent recommendation made by the FATF to “strengthen the fight against money laundering can be considered as a signal of caution from those who operate precisely in informal networks”.
On October 25, the FATF added Algeria to its list of jurisdictions placed “under enhanced surveillance”, known as the gray list. This measure can largely explain the decisions taken by the government to attack the informal market.
The increase in the tourist allowance was not among the authorities' priorities, even it was part of the electoral promises of President Abdelmadjid Tebboune's first term.
• The second reason is “linked to new regulation n°24-05 of October 13, 2024 modifying and supplementing regulation n°16-02 setting the threshold for declaring the import and export of currencies by residents and non-residents, including the The maximum amount to export in cash annually is around €7,500,” according to the economist.
For him, this measure will “certainly influence the level of demand for foreign currencies on the informal market and therefore on exchange rates”.
• The third reason of the fall in the prices of the euro and the dollar on the black market in Algeria, lies in the “valuation of the tourist allowance from 2025, passing from the counterpart of 15,000 dinars in euros annually, or nearly 100 euros, down to 750 euros per calendar year for adults and 300 euros for minors,” he emphasizes.
Black currency market: Algeria faces a dilemma
“In this case, there is the hypothesis according to which nationals, in large numbers, who request informal exchange to travel, prefer to wait for the entry into force of the new tourist allowance before deciding on what amount purchased in the informal,” remarks Brahim Guendouzi.
“Also, the suppliers of currencies on the informal market adopt very rational behavior since they demand, in terms of prices, profitable exchange rates to be able to dispose of the currencies they hold. Except that the gap between the official price and that of the informal market has become too high, which encourages the regular supply of the latter,” explains the Professor of Economics.
The black currency market in Algeria is the only way for Algerians to obtain the currencies they need to travel, health care or finance their studies abroad, import cars and other products.
“The exchange control exercised by the Bank of Algeria does not offer other possibilities to many residents, to carry out various activities, than to address the informal market”, points out Brahim Guendouzi who recalls that the parallel black market , “remains tolerated by the monetary authority, in view of the possibilities offered to individuals to be able to open and fund currency accounts, in accordance with regulation no. 07-01 of February 3, 2007, modified and supplemented, relating to the rules applicable to transactions current affairs with foreign countries and currency accounts. »
If the total dismantling of the black currency market does not seem to be on the government's agenda for reasons linked to its usefulness and the exchange policy of the Bank of Algeria, the question of its control arises with acquittal, due to the risks associated with money laundering and capital flight.
Large sums of foreign currency illegally leave Algeria each year abroad and others also enter illegally to be recycled in real estate, catering, etc.
For Professor Guendouzi, the government's measures aim to strengthen control over the black currency market, by controlling sources of supply. It is also a matter of regulating this market in order to avoid a new detrimental surge in prices.
“The supply of currencies should not come from hidden sources,” he explains. But the task is not easy due to the opaque nature of this market and the colossal interests at stake.
So how can we ensure that the black currency market is supplied by healthy sources when it is opaque by definition?
“That’s the whole problem. If it's secret, it will be money laundering. For some of the sources, there is traceability,” replies Brahim Guendouzi.
With measures linked to the tourist allowance and the amount of foreign currency authorized for export, Algeria has decided to ban cash in real estate transactions from January 1, 2025. Real estate, it is known, is one of the sectors used throughout the world for money laundering.
By imposing checks in real estate transactions, Algeria will close one of the main doors used to introduce foreign currency in the form of dinars into the country.
To reduce its scale, economists say that growth is needed to generate non-hydrocarbon currencies?
In addition to controlling the black currency market to avoid money laundering operations, the other problem facing the authorities is how to reduce its extent?
The equation is simple: to reduce the reliance on imports of goods and services, we must produce more in Algeria and develop non-hydrocarbon exports to generate more foreign currency in the country.
“The consolidation of non-hydrocarbon exports requires a significant investment effort to guarantee surpluses of quality products for foreign markets. In this case, productive investment is the engine of economic growth. The diversification of exports remains a priority objective within the framework of current economic policy,” maintains Brahim Guendouzi.
This economist believes that it “goes without saying that the foreign exchange earnings achieved through an effort to develop non-hydrocarbon exports could result in a retrocession of 50% of revenues in foreign currencies to the exporters' code, in accordance with a regulation from the Bank of Algeria.
This could be the subject of a “movement likely to fuel the supply of currencies on the informal market. However, this hypothesis is not obvious given the arbitrations and other opportunities available to exporters, whose number is increasing,” says Brahim Guendouzi.
An increase in exports of non-hydrocarbon products could instead lead the Bank of Algeria to “relax exchange controls in favor of resident companies by giving them the opportunity to act internationally through investment and no longer through export only. Wait and see! », According to Brahim Guendouzi.
In other words: reverse the situation: from a country that imports almost everything, Algeria will gradually change its status by reducing the share of imports in its economy and increasing the share of exports other than oil and gas.
Non-hydrocarbon exports remain low, although they have increased significantly in recent years, from $1.92 billion in 2020 to $4.58 billion in 2021 and $5.98 billion in 2022.
In 2023, Algeria's non-hydrocarbon exports fell slightly to $5.06 billion, according to the quarterly statistical bulletin for the first quarter of 2024 established by the Bank of Algeria.
For the first of 2024, the amount of exports excluding oil and gas from Algeria was only 1.06 billion dollars compared to 1.33 billion dollars during the same period of 2023.
Is there a link between growth and the black currency market?
For another economist, “there is a direct link” between economic growth and the black currency market in Algeria.
“Our currency is weak because we do not produce enough goods and services to export, but also to satisfy local demand,” he explains, citing care and studies abroad, acquisition of goods, the importation of cars and other goods not available in sufficient quantities in Algeria.
“As long as Algerians rely on imports to meet their needs, the parallel currency market will exist,” he says. “In reality, Algerians import a lot of products using the black currency market, partly because of import restrictions. To this, we must add a new one which is the hoarding of dinars in foreign currency to escape inflation,” he adds, giving the example of cars.
In the 2000s, new cars were available in sufficient quantities on the Algerian market and few Algerians imported them from abroad. Since 2019, the situation has completely changed, with the blocking of imports, then piecemeal purchases since March 2023, which has created a serious shortage of new automobiles in the country.
In addition to imports, two other drivers fuel the black currency market: tax evasion and the extent of the informal economy. “The scale of the informal sector forces people to resort to the black currency market to hoard their dinars, acquire goods abroad, import products into Algeria…” explains this economist who preferred to remain anonymous.
In this context, and unless there is a radical decision by the authorities to dismantle it, the black currency market, which is supported by strong demand, cannot suddenly disappear. The question is what is the “acceptable” rate of the euro at which the market will stabilize?
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