The States Create A Chaos

The value of the German mark has been fluctuating somewhere between 65 and 200 dinars! The official foreign exchange rate which was established at the end of January is still valid for old foreign exchange savings and customs accounts and after the last devaluation it amounts to 65 dinars for a mark. The foreign exchange rate established at the meeting of bankers of the Yugoslav foreign exchange market is applied in case of citizens who have deposited their foreign exchange savings in the bank after April 27 1991, and it now amounts to 84.2 dinars for a mark. The third exchange rate of 110 dinars is being applied to the buy out of new foreign exchange. It is based on the decision of the National Bank of Serbia to introduce additional stimulation of 68% to the official exchange rate. The black market completes the picture with the German mark worth around 130 dinars. Unofficial sources claim that certain companies have to pay such a high commission to the banks when buying foreign exchange that the German mark costs them as much as 180 and 200 dinars!

The uncontrolled rollicking of foreign exchange rates is the product of the malfunctioning of the central monetary authority. Namely, instead of entrusting the federal government and the central issuing institutions with the exclusive task of ensuring the true value and stability of the domestic currency, or rather, instead of entrusting the National Bank of Yugoslavia, in the part of the country where the dinar is the only means of payment - the current situation is such that all other institutions have a greater influence on the creation of the foreign exchange rate policy than the organs whose constitutional responsibility is to do that. The republic governments and central banks are increasingly assuming the responsibility for creating the monetary and foreign exchange rate policy. They have been justifying this by their need to create their own foreign currency reserves. On the other hand, the issue of usefulness of such behaviour remains, particularly in case of those who have been insistent in claiming that Yugoslavia still exists and will continue to exist. Since, if that is really so, why are republic foreign exchange reserves being formed when it is obvious that a state, regardless of the form of its organization, has to have a unified monetary and foreign exchange policy.

The present Serbian authorities explain the introduction of the stimulative exchange rate with the need to keep the foreign currency from leaking to other republics, which are allegedly interested in buying foreign currency regardless of its price, since they will sooner or later introduce their own currency. Identical warnings are coming from Macedonia as well, which say that Serbia can print as many dinars as possible, which would not seriously affect the Macedonian economy.

There is no doubt that the citizens will bear the greatest burden of the current chaos prevailing in the foreign exchange market, since they have entrusted the banks in the rest of Yugoslavia with keeping around 7 billion dollars and so will the economy which gets foreign currency through the now accepted difference between the official and the black market exchange rate. All the more so because since mid-February the Serbian firms have the obligation to allocate one fifth of their foreign exchange earnings for the formation of republic foreign exchange funds, while on the other hand, those reserves cannot be used for buying the necessary semi- finished goods, unless the government of Serbia decides that it is really necessary.

Despite all this, it is now certain that even the official exchange rate of 65 dinars for a mark will have to be changed. Namely, the federal government decided on the occasion of the January devaluation that it would check the exchange rate every month so that the situation of last year would not repeat - when the exchange rate of 13 dinars for a mark remained unchanged for nine months, while prices at home rose to over 200% in the meantime. Considering that the prices in January rose by another 26% and that the rate of inflation in February will amount to 30%, it is clear that the new correction of the exchange rate cannot be avoided. All the more so because the demand for foreign currency on the foreign exchange market has reached gigantic proportions, while no bank has offered to sell a single cent. Lastly, the thinned down foreign exchange funds speak in favour of the devaluation as well, while a new foreign exchange inflow can hardly be expected without a correction of the value of the dinar.

However, it is a rule of the thumb that devaluation itself, without the necessary supporting measures from other spheres of the economic policy, cannot bring favourable results. Since, with the present rate of inflation, which has assumed horrifying proportions in just a month, all the effects of devaluation would be neutralized.

The question of where the republics got the necessary dinars for buying out foreign exchange remains. In other words, is the money from federal funds being used for creating republic foreign exchange reserves?