Dead on Arrival

The Yugoslav Dinar is already clinically dead having lost all attributes of money. For months now it has not been used as a means of payment, while the German Mark or any other hard currency has occupied its place. Therefore, it is a matter of a day when it will be completely abolished from circulation and allow coupons or any other surrogate of money to take over. This comes as a logical consequence to everything which has recently been happening to the local currency and economy.

Numerous experts consider it a wonder that the Yugoslav economy is still functioning at all and that a total monetary and financial crash has not occurred yet. Such an "Orwellian" scenario has been put off by the state organs by ever frequent knocking off of zeroes and by introducing ever larger bank notes into circulation. What is certain is that this is not the right prescription for the terminally ill national currency. If there is no radical reform of the monetary system based on some new, healthy home currency which has not been discredited the real economic cataclysm is in the offing.

According to some experts, Yugoslavia has already entered deep into the first act of this tragedy. The rate of inflation in November of over 20,000% has come close to the Weimar inflation of 32,400% which caused a monetary crash in Germany. It is quite certain that the rise of retail prices in December will exceed 100,000%. In the time period between November 11 and December 11, when the majority of prices are recorded and the figures are used by the Federal Bureau of Statistics to establish the official inflation rate, the black market exchange rate of the German Mark rose from 800,000 to one billion Dinars or by 125,000%. Since the prices are expressed in points whose value is worked out according to the value of a German Mark, it is easy to conclude that the inflation rate will more or less equal the trend dictated by the black market exchange rates.

To make the matters worse, the black market exchange rate is accelerating the pace by the hour and is beginning to grow at an exponential rate, and street dealers adapt by changing the value of a Mark five or six times a day. On the basis of extrapolation of the trend recorded in the first half of this month the prognosis is that the value of one Mark will stand at astronomic 2,000 billion Dinars on January 4, 1994! Forecasts founded on the growth of the black market exchange rates in the first ten days of December appear more realistic. The value of a Mark increased from 50 million to 1 billion Dinars or 20 times in this interval. A Mark reached the value of 20 billion Dinars on December 20, and is expected to cost 400 billion ahead of the New Year's Eve. On the basis of these forecasts it can be worked out that the domestic currency will have devalued at least 800,000 times only in 31 days of December, and if the assessments that a Mark will be worth 2,000 billion Dinars prove to be correct a Dinar will have devalued by an incredible 4 million times only in a month's time! Taking into consideration the street value of a Mark which amounted to 1,650 old Dinars at the beginning of this year, one arrives at a catastrophic conclusion that the local currency has devalued from 24.2 to 120 million billion times over 12 months!

It is best to use a concrete example in order to illustrate how much has the value of hard currencies rose compared to the domestic currency. At the beginning of the third decade of December one had to spend 20 billion Dinars for a Mark. 12 000 billion Marks could be bought for the same amount of Dinars on January 1. This only proves the state organs' care and skill in treating the national currency.

Consequently, a number of those who doubt the ability of the current authorities to carry out a radical monetary reform is on the rise. Without a reform, both the citizens and the economy are bound to see the second act of the monetary drama. In several days checks and all other means of non-cash payments will be abolished, which will soon be followed by the abolition of Dinar bank notes. The economy will step into prehistory returning to the oldest and most primitive way of exchanging goods for goods, i.e. barter. This might represent a prelude to the planned economy, in a form which has not been recorded not even in the most anti-market-economy oriented countries. State clerks would in that case determine rations to workers, pensioners, the unemployed...

Simply speaking, they would become ultimate arbiters and distributors of everything with all negative implications such a system is bound to have. On the other hand, such a scenario would be much more detrimental to the country than current sanctions. A transfer to the planned, almost war-time economy would mean imposition of the blockade within the country, which would make the return of the domestic economy into the world economy more distant. Such isolated economy would not have a chance to survive and let alone develop, although everybody knows that one country must be ruined sooner or later if there is no constant development of its economy.

Even though there are people who believe that one could go on knocking off zeroes and printing new bank notes infinitely without a danger of a total economic and monetary crash, an increasing number of experts advocate an urgent and comprehensive financial reform. As all financial transactions have to be stopped for several days if such an complicated operation is to be realized, one gets the impression that the forthcoming holidays present the ideal opportunity. Specially since the country's monetary policy falls within the competence of the National Bank of Yugoslavia (NBJ) and the Federal Government, last-week's elections in Serbia do not represent an obstacle nor need one waste time waiting for new republican organs to be constituted. This is especially true if one assumes that all political parties want the national currency to be healthy and installing order in the monetary sphere. However, if one considers that all this could have been done long time ago, doubts are raised that this may be so.

Nevertheless, one thing is certain: another denomination will take place in several days' time and the Dinar will lose at least nine or even more zeroes the second time around this year. That will be the fifth denomination in last five decades.

But, that is not a solution. Zeroes will have to be knocked off every fifteen days unless extensive printing of money is stopped, public spending is reduced and financed from real and not inflationary sources. Printing of money will become meaningless. The National Mint in Topcider will not be able to print new Dinar bank-notes for pure technical reasons. For example, in Germany in 1923, there were more than 100 factories printing money, but that did not suffice either. Over here, unfortunately, or rather, fortunately, there is only one institution authorized to do this job. It is very difficult to believe that the authorities would be so generous to allow "private" mints. Although, frankly speaking, that would still be better that the practice so far when the national banks and republic organs created gray issue for their own needs and to the extent they found necessary for them. Naturally, all was done with no control by the central monetary authority. On the other hand, this significantly contributed to constant devaluation of a Dinar since at least 70-80 per cent of bank notes currently in circulation have been forged if regulations are consulted. There are claims that the authorities tried and had some success to buy with this money and through their street dealers marks and dollars which the citizens had kept in their stockings and mattresses.

Although it is still uncertain how will the third multi-party elections in

Serbia affect the economic developments, including the future and stability of the Dinar, one can claim that it cannot go on like this for much longer. A thorough and comprehensive reform is the only way out of the catastrophic situation. The sooner the state and its organs realize it, the better.