The Proposal for a New Dinar: An Algerian Economist's Vision

An Algerian economist based in Washington, Mohamed Gahche, has proposed a radical monetary reform. His suggestion involves removing one zero from the dinar to reset the financial system, combat the parallel market, and promote financial integration.

In a column published on December 3 in Le Jeune Indépendant, Gahche outlines a structured plan. This plan aims to create a “new dinar” that can address long-standing weaknesses in Algeria’s financial architecture. He argues that the current dinar’s progressive loss of value, the growth of the informal exchange market, and an exhausted tax system necessitate a strong shock.

A New Dinar to Trigger a System Reset

Gahche's proposal is straightforward: redenominate the dinar by removing one zero. A 10,000-dinar note would become 100 dinars, without affecting citizens’ purchasing power. This reform would serve both symbolic and technical objectives. It would provide the state with an opportunity to reset monetary mechanisms and rebuild confidence.

This is not Gahche's first call for such a reform. He initially floated the idea back in 2008. However, this time, his proposal includes a broader and more detailed strategy.

Forcing Financial Integration Through Mandatory Banking

The core idea of the reform is to integrate informal liquidity into the formal system. All existing cash would need to be exchanged for the newly issued banknotes. To facilitate this, individuals would be required to open bank accounts.

Gahche suggests limiting cash withdrawals and mandating that all transactions—such as transfers, cheques, and bank card payments—be conducted through formal channels. This requirement would compel informal operators, currency traders, and money changers to declare previously invisible fortunes stored in cash.

Restructuring the Exchange Market

To support the reform, Gahche calls for a restructuring of the exchange market. He proposes authorizing licensed private exchange offices that operate under a flexible tax regime. The closer these offices operate to the official rate, the lower their taxes would be. Conversely, significant deviations from the official exchange rate would incur heavy taxes.

This approach aims to reduce the appeal of the parallel market while enhancing transparency and safeguarding currency flows.

A Reform That Requires a Strong Productive Base

Gahche emphasizes that no monetary reform can succeed without a robust productive economy. A mere redenomination will not restore the value of the dinar. For the project to succeed, Algeria must revive local production, reduce imports, support exporters, and diversify its foreign currency sources.

He mentions several avenues for achieving this, including bilateral agreements with neighboring countries to facilitate trade in local currencies. For instance, an Algeria–Tunisia agreement could allow both nations to settle imports directly in dinars. Additionally, tourism—still largely underdeveloped—could become a significant generator of foreign currency.

A Symbolic Gesture With Transformative Potential

Removing a zero from the dinar may appear merely symbolic. However, within a coherent, ambitious, and well-coordinated strategy, it could serve as a genuine lever for economic transformation. What remains is the need for strong political will to initiate such a bold reform.

Conclusion

In conclusion, Gahche’s proposal for a new dinar presents a comprehensive approach to addressing Algeria's financial challenges. By integrating informal liquidity into the formal system and restructuring the exchange market, the proposed reform aims to create a more stable economic environment. The success of this initiative will depend on Algeria's ability to strengthen its productive base and foster political commitment.

The potential for a new dinar to reshape Algeria's financial landscape is significant. It represents a crucial step toward achieving a more resilient economy. As the country navigates these changes, the focus must remain on sustainable growth and development.

For those interested in the intricacies of Algeria's economic landscape, this proposal offers a thought-provoking perspective on the future of the dinar and the broader financial system.