What is the impact on Algeria?

The symbolic limit of parity between the euro and the dollar has been crossed for the first time since the introduction of the single European currency. For the first time since 2002, a euro equals one dollar.

In Algeria, according to the price of the main currencies in the foreign exchange market between banks in Algiers, the value of the dollar and the euro this morning, Wednesday, reached about 147 dinars (146.9893 dinars per dollar and 147.5428 dinars per euro).

Professor of Economics Ibrahim Guendouzi analyzes the impact on the Algerian economy. On the other hand, the value of the dinar continues to decline against the US dollar.

Parity between the euro and the dollar has been reached since the launch of the single currency in 2002. How can this be explained?

The economic fallout from the pandemic as well as the Russian-Ukrainian military conflict, including the fact that Russia was able to impose duties on its oil and gas in rubles, has already led to a sharp devaluation of the single European currency against the US dollar. This, in a global economic context marked by resurgence of inflation and risks to economic growth.

The US Federal Reserve has reacted twice by raising interest rates and the European Central Bank (European Central Bank) is preparing to do so in July of this year.

What effect does this have on Algeria, which exports in dollars and buys a lot in euros?

We are already expecting a record sales figure from Sonatrach, which is mainly determined in dollars.

Algeria’s trade balance for 2022 will be largely in surplus. The positive effect will be on the level of foreign exchange reserves, the level of which will improve.

Logically, Algerian importers will be more inclined to buy from the eurozone because prices will be competitive due to the sharp depreciation of the single currency.

However, with inflation continuing, there is reason to consider a compensatory effect. Basically, the EU remains Algeria’s main supplier with just over 50% of its imports.

On the other hand, tourists whose currency has reached the dollar will find it better to go and spend their holidays in the eurozone, taking advantage of the exchange rate advantage.

Unfortunately, this will not be the case for Algerians whose main tourist destination is not this region due to the restrictive and selective visa policy practiced by EU countries.

What about the value of the Algerian dinar against the major currencies?

The exact flexibility of the Algerian dinar allows the Bank of Algeria to adjust the exchange rate according to two cases. First, according to macroeconomic criteria, both internal and external. This was done at the beginning of 2022 in the wake of the large budget and balance of payments deficit, recorded in 2021.

Then taking into account changes in the exchange rates of major currencies in international markets, in this case the dollar and the euro.

This is what the Bank of Algeria has been doing in recent weeks. We also moved from 160 dinars per euro at the beginning of the year to 147 dinars per euro these days, ie 13 dinars lost in relation to the single currency. On the other hand, the dollar recorded gains of 7 dinars during the same period, from 140 to 147 dinars.

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