Dollar-euro exchange rate: what impact on the Tunisian dinar?

Dollar-euro exchange rate: what impact on the Tunisian dinar?

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This week, the euro lost 3%, even below $ 1.05 on Thursday, April 28, 2022. The euro is getting closer and closer to the exchange rate with the world’s leading currency. A level that has not been reached for 20 years. What are the implications of this exchange rate for the Tunisian dinar? Future data…

With Moktar LamariPh.D.

The euro was rarely below the dollar. It happened between 2000 and 2002. On the first day of trading on January 4, 1999, it had reached $ 1.1747. On the same date, the euro was worth only 1.2 Tunisian dinars. The dinar was worth almost one US dollar. But since then, the descent of the Tunisian dinar into hell has been irreversible and catastrophic for the purchasing power and standard of living of the Tunisians.

But in this text, we will look more at the present and the near future, just to keep elites and economists informed of emerging trends. The dinar is anchored in a basket of currencies, including the euro and the US dollar.

Weakening of the euro against the strength of the dollar

For 2022, a consensus among European economists predicts a rise in the euro to 1.09 to $ 1.12 this year. But the euro runs counter to forecasts. Of the 60 banks that have forecast euro-dollar exchange rates this year, only Jyske Bank of Denmark forecasts one euro close to the exchange rate of $ 1.01.

“The dollar’s move against other currencies is probably not over, but the ECB will probably be able to avoid the euro falling below the exchange rate.”say UniCredit market strategists.

The dollar-denominated index (against a basket of major currencies) hit a 20-year high this week. The dollar is taking advantage of its yield performance. The Fed is set to raise interest rates this year and a 50 basis point increase in Fed funds is expected next week. This will increase the attractiveness of the dollar and its uptrend against almost all currencies and currencies. Oil-exporting countries will withdraw from the game without difficulty!

In an uncertain geopolitical environment, the dollar is also regaining its status as a safe haven.

The European currency “It could fall to its 2017 low of $ 1.0341 if macroeconomic conditions do not improve”warns the head of European exchange research at HSBC, who adds that “Consumer confidence in Germany and France has fallen below the levels reached the peak of the pandemic in early 2020 and the European Central Bank is worrying late about inflation at a time when growth prospects are deteriorating.”

Weak growth combined with rising prices will burden the euro. Before the start of the war in Ukraine, it was about $ 1.13. It had begun to fall against the dollar, with the economic consequences of the conflict far greater for Europe than for the United States.

Devaluation of competitive devaluation

The euro recorded most of its fall against the dollar, against which it has lost more than 7% since the beginning of the year. Its global exchange rate is reduced by only 2%. In particular, it is stable against the pound sterling and strengthens by 5% against the yen. It is down 3.5% against the renminbi.

Faced with a dollar experiencing general improvement, the euro lost more in four months than the whole of 2021 (-7%).

This fall favors, by definition, European exports, as they become cheaper in dollars. It probably would not have gone unanswered under the US Republican administration. Donald Trump, as we remember, had accused Europe of cutting the euro to regain competitiveness to the detriment of the United States.

The Biden administration is closely monitoring countries that would engage in covert competitive devaluation that harms US interests. As a sign of this vigilance, in late 2021, the US Treasury Department noted in its report on the exchange rate policy of the United States trading partners that Germany’s high trade surplus with the United States was not “Not justified by fundamental economic data”.

The IMF, during the most recent spring meetings (2022), also devalued the competitive devaluation. Quite a change of direction that may surprise countries like Tunisia. Countries that have always devalued their currency, as the IMF dictates, claiming to be competitive for their businesses and industries, but completely sacrificing the purchasing power of their citizens… and other macroeconomic determinants.

Germany, the eurozone’s largest economy, has benefited from the devalued euro for its exports. With the European currency further falling this year, these criticisms may well regain strength.

The nose of the Tunisian dinar is falling against the dollar

In the wake of the financial crisis and the tumultuous discussions with the IMF for a new loan, the dinar is starting to fall again.

In recent months, the dinar has lost almost 9% of its value against the US dollar. Now you need 3.09 dinars to get one US dollar. Three months ago, he was not getting more than 2.7 dinars. An entire fall, ignored by the media, ceral economists and related elites.

Tunisia is in an unprecedented economic crisis! The war in Ukraine has pushed up energy and grain prices. Tunisia has to pay much more for imports of these products. It’s worth at least 25% more dollars to import the same quantities of cereal or oil a few months before the war in Ukraine.

And that raises future uncertainties, especially with the most greedy imported inflation that could reach double digits by August. I estimate it at 12% for September, thanks to simulations using the industrial price index and the elasticity factors that measure the relative sensitivity between the fluctuation of the exchange rate of the dinar and the relative fluctuation of the inflation rate between 2010 and 2021.

The impact will be huge on purchasing power, in a politically sensitive context (referendum, protest, back to school, growing budget deficit, etc.).

On the other hand, three pieces of good news could benefit the Tunisian economy.

  1. Phosphate prices are rising significantly. And this will provide more income and foreign currency to the Ministry of Finance, and to the CPG, it is still necessary for production to resume its normal course, which in fact is not yet the case.
  2. Tunisia is expecting a real tourist boom this summer. Tourists from neighboring countries (very wasteful) as well as tourists from European countries will return in large numbers. All this if the airlines are more involved in the competition to reduce air travel prices. Tunisair must review its prices and Tunisia must open up to the competition related to open skies contracts …
  3. Tunisian immigrants and migrants abroad increase remittances to their families… Some are excited and encouraged to invest in Tunisia. They invest, but not enough, Tunisia prefers foreign direct investment (FDI) to the investments of its expatriates. The motives aimed at this category are ridiculous and insufficient. Worse, these migrants are targeted as cash cows by customs officials, using outdated foreign exchange and retention laws.

Elements of Foresight!

Nevertheless, the dinar will continue to fall against hard currencies, especially the dollar. And many predict a significant devaluation of the dinar, in the range of 10% to 15% in the exchange rate of the dinar against the US dollar. Some prefer to talk about slipping to clear the Central Bank of the monetary policy exaggerations of recent years.

My estimates point in the same direction. Having only staggered chronological data (INS and Central Bank), they are based on forecasts in three scenarios (business as usual, optimistic, pessimistic). I hope I am wrong about the devaluation of the dinar and I hope to see the dinar go up… and not down!

The BCT and the Treasury must have made and announced their forecasts that we would like to see, at least to reassure economic operators and the general public. At least, to rub your eyes, raise your head and see what comes, for the dinar and the Tunisian purchasing power in the coming months.

Meanwhile, the economic crisis is pushing economic operators in Tunisia to demand more dollars, gold, as safe havens. While withdrawing their dinars from bank accounts, preferring to keep them liquid, accumulated ματα Issues of speculation and acceleration of capital flight are involved. The Lebanese scenario is in progress for Tunisia.

But the question arises, if the euro depreciated sharply against the dollar and other strong currencies, why does it not face the dinar so much. The euro is falling against the dollar… but not against the dinar! BCT should help us understand.

Without waiting for the BCT’s answer to this question of common sense, one can naively predict the exchange rate between the dollar and the euro and calculate at one dollar at 3.25 dinars (the euro exchange rate in dinars, today).

These are the kinds of expectations and scenarios that could be detrimental to citizens’ purchasing power, inflation and the trade deficit, the state budget and the balance of payments …

Forecast econometric studies should be carried out urgently, in order to better predict the near future of the dinar. We must be ready to face this other shock when the time comes!

* University in Canada.

Note: Data for the dollar-euro exchange rate come from European and American institutions. Adapted by the author.

Dinars and future data are collected (from the available statistics) and with the author’s future estimates.






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