Wheat Is Coming, The Dinar Is Leaving

The dinar was devalued over twenty times in just one month. Money-printing by the National Bank of Yugoslavia is responsible for this. The alleged use of central bank money for purchasing wheat has definitely invalidated the domestic currency. The federal government did not stand up against this policy of the National Bank of Yugoslavia and is thinking of introducing commodity money for the purchase of wheat - in the hope that this will solve the problem. Inflation is not just the result of the war and the economic blockade. Over the past few months, there have been changes in the economic system and their goal was to make the country's economic position easier, but all they did was to introduce new mechanisms which directly generate inflation. Selective credits from central bank money have been traditionally used for financing agriculture and exports. With the reduction of exports, they were expanded to include the financing of reserves in a number of industrial branches. This opened up the possibility of an unlimited demand for new money and created the illusion that central bank money could create working capital which had never existed in socially-owned firms.

However, over the past month, the financing of the industry has become negligible compared to the printing of money for agriculture. Even the rate of refinancing of credits for the purchase of wheat has increased by 100 percent, which I don't recall ever having been the case. On the other hand, the possibility of the state running up debts with the National Bank of Yugoslavia is greater. It is not only the federation which has the right to do this. The new law on the National Bank of Yugoslavia also grants this right to the republics. Since Serbia has a bigger budget than the federation, this means that the deficit financing of the budget has doubled. As long as there are selective credits and as long as the state can get loans (higher than 5 percent of its budget), our banknotes will have an abundance of naughts.

Tuesday, July 13th, was a historical date for the Yugoslav market. That is the day when the collapse of the national currency started. At all Belgrade stock exchanges, the offer of so called giro money was bigger than the demand. The interest rates rose by only 2 percent, even though daily inflation was over 15 percent. Farmers are also waiting for central bank money. They will get it as soon as the banks turn their money over two or three times. All the losses of an irrational social economy have poured into the banks, and in these machinations they see their only chance of survival. The National Bank of Yugoslavia's monetary policy forecasts a primary issue of some 270,000 billion dinars for the third quarter of the year. There are rumours, however, that twice as many dinars were printed in the first days of July. What will happen when, after the farmers and the credits for the reserves of the biggest social loss-makers, it becomes the federation's turn? With the adoption of the federal budget, the federation will owe the National Bank of Yugoslavia another 383,327 billion dinars.