The dinar's exchange rate against major currencies Macedonian hard the world has remained stable in recent years. Due to restrictions of the IMF, local Národná (Central) Bank does not print money and there is no physical dinars in the economy and local banks.
Therefore, even if people want to buy foreign currency on the black market, or directly from banks - have no dinars to do with them.
The total amount of dinars (M1, in professional financing lingo) in the economy is about $ 200 million, according to official figures. This translates into $ 100 per capita. Thus, although each and every citizen of Macedonia decided to convert all your dinars DM - would still be able to buy 150 DM each, on average. These small quantities are not sufficient to raise the rate at which DMs are exchanged for dinars (= the price of DMs in dinars).
But this situation will last forever?
According to economic theory, scarcity raises the price of premium. If dinars are rare - their price will remain high in DM terms, ie not be devalued against the stronger currency. The longer the Central Bank does not print dinars - the longer the exchange rate is maintained.
However, a strong currency (the dinar, in this case) is not always a good thing.
The Denar is not strong because Macedonia is rich. The country is in dire economic problems. The banking system is dangerous and unstable. Foreign exchange reserves are minimal - less than $ 30 million.
The currency is stable due to restrictions imposed from outside and artificial manipulation of the money supply.
Moreover, a strong currency makes goods produced in relatively expensive in foreign markets, exports Macedonia. Therefore, it is difficult for Macedonian growers and manufacturers to export. When they sell their products in Germany, receiving DM for them and when they convert these receipts in dinars - become less and they would have if the Denar reflected the true relative strengths of the two economies: the German and the Macedonian one.
To pay expenses (eg wages to their workers, rent, utilities) in dinars. These expenses grow all the time that the real inflation grows (as opposed to the official rate of inflation which is suspiciously low) - but they still receive the same amount of dinars to its products and the products when they convert the DMs which has to them. On the other hand, imports of Macedonia become relatively cheaper: it takes less dinars to buy goods in DM in Germany, for example.
Therefore, the end result is a growing preference for imports and a decline in exports. In the long term, increasing unemployment. Export is the largest force driving the creation of jobs in modern economies. In its absence, economies stagnate and decline and people lose their jobs.
However, a realistic exchange rate has at least two additional side effects:
One - as a rule, various sectors of the economy to borrow money to survive and expand.
If you expect the local currency is devalued - will refrain from taking long term credits denominated in hard currencies. They prefer credits in local currency or short term credits in foreign currency. They will be afraid of sudden and massive devaluation (such as happened in Mexico overnight).
Their lenders will also be afraid to lend money, because these lenders can not be sure that borrowers have the extra dinars to pay for the credits in case of a devaluation. Naturally, a devaluation increases the amount of dinars to pay for a loan in foreign currency.
This is bad, both from the standpoint macro-economic (the economy as a whole) - and from the micro-economic point of view (that of the single firm).
From the point of view micro-credit short-term economic need to be returned long before companies that have matured to the point lent of being able to repay the money. These short-term debt load that can alter its financial statements for the worst and sometimes their very viability at risk.
Since macro-economic point of view, it is always better to have more time with maturities of debt to pay less each year. The longer the credits a country (individual companies are part of a country) has to return - the better your credit standing with the financial community.
Another aspect: foreign credits are a competition for loans granted by the local banking system. If companies and individuals do not take loans from abroad for fear of a devaluation - they help create a monopoly of local banks. Monopolies have a way to set the highest price possible (interest rates) for their merchandise (= the money they lend). Access to foreign credits reduces interest rates through competition with the local credit providers (banks =).
It would be easy to conclude, therefore, is an important interest of a country open to foreign financial markets and provide their businesses and citizens with access to foreign credit.
One important way to encourage people (and companies are people) to do things - is to allay their fears. If people fear devaluation - a responsible government can not promise not to devalue its currency. Devaluation is a very important policy tool. But the government can insure against devaluation.
In many Western countries, you can buy and sell insurance contracts called forwards. They promise the buyer a certain rate of change in a certain date.
However, many countries have no access to these highly sophisticated markets.
Not all the coins can be secured in these markets. The Macedonian Denar, for instance, is not freely convertible, and that is not liquid: there is enough dinars to meet the needs of a free market. Therefore, no assurance can be given to these contracts.
These less privileged countries establish special agencies which provide (mainly export) firms with insurance against changes in exchange rates in a given period of time.
For example:
The company buys MAK harvesters and tractors from Germany. You have to pay in DM.
An international development bank offered to MAK a loan repayable in 7 years time in DM.
Today, MAK would be so afraid of devaluation, preferring to pay the equipment supplier as soon as it has cash. This creates liquidity problems at MAK: wages are not paid on time, raw materials can not be bought, production stops, MAK loses its traditional markets - all in order to avoid the risks of devaluation.
But - if the right government agency existed?
If government insurance against devaluation existed - MAK certainly take the loan of 7 years. It would take, say, 10 million DM.
MAK apply to the government agency with its business.
It would pay the government agency insurance an annual fee of 2.5% of the remaining loan (as is amortized and reduced with each monthly payment). This would be considered a proper financing expenditure and the company may deduct from their taxable income.
The government will provide MAK with an insurance policy. An exchange rate (say, 30 dinars to the DM) include in the policy.
Yes - at the time that MAK had to make a payment - the rate has been above 30 dinars to the DM - the government will pay the difference to MAK in DM. This will enable MAK to meet its obligations to its creditors.
MAK may cancel this insurance at any time. If, for example, suddenly signs a major contract with a German buyer of its products - will have income in DM which can be used to repay the loan. Then the government insurance will no longer be necessary.
This simple government assistance will have the following effects:
It will encourage businesses to obtain foreign credits.
It will create competition for local banks, reduce interest rates and foster a wider and better range of services offered to the public.
It will encourage foreign financial institutions to give loans to local firms once the risk of re-payment problems due to the devaluation is minimized.
Put Macedonia in the ranks of developed countries and export-oriented world.
It will facilitate activities with more long-term loans (such as modernization of plants for which longer terms of payment are required).
As time passes, the private sector can step in and provide their own insurance against devaluation.
Insurance companies in the world does - why not in Macedonia which needs it more than many other countries?
Therefore, even if people want to buy foreign currency on the black market, or directly from banks - have no dinars to do with them.
The total amount of dinars (M1, in professional financing lingo) in the economy is about $ 200 million, according to official figures. This translates into $ 100 per capita. Thus, although each and every citizen of Macedonia decided to convert all your dinars DM - would still be able to buy 150 DM each, on average. These small quantities are not sufficient to raise the rate at which DMs are exchanged for dinars (= the price of DMs in dinars).
But this situation will last forever?
According to economic theory, scarcity raises the price of premium. If dinars are rare - their price will remain high in DM terms, ie not be devalued against the stronger currency. The longer the Central Bank does not print dinars - the longer the exchange rate is maintained.
However, a strong currency (the dinar, in this case) is not always a good thing.
The Denar is not strong because Macedonia is rich. The country is in dire economic problems. The banking system is dangerous and unstable. Foreign exchange reserves are minimal - less than $ 30 million.
The currency is stable due to restrictions imposed from outside and artificial manipulation of the money supply.
Moreover, a strong currency makes goods produced in relatively expensive in foreign markets, exports Macedonia. Therefore, it is difficult for Macedonian growers and manufacturers to export. When they sell their products in Germany, receiving DM for them and when they convert these receipts in dinars - become less and they would have if the Denar reflected the true relative strengths of the two economies: the German and the Macedonian one.
To pay expenses (eg wages to their workers, rent, utilities) in dinars. These expenses grow all the time that the real inflation grows (as opposed to the official rate of inflation which is suspiciously low) - but they still receive the same amount of dinars to its products and the products when they convert the DMs which has to them. On the other hand, imports of Macedonia become relatively cheaper: it takes less dinars to buy goods in DM in Germany, for example.
Therefore, the end result is a growing preference for imports and a decline in exports. In the long term, increasing unemployment. Export is the largest force driving the creation of jobs in modern economies. In its absence, economies stagnate and decline and people lose their jobs.
However, a realistic exchange rate has at least two additional side effects:
One - as a rule, various sectors of the economy to borrow money to survive and expand.
If you expect the local currency is devalued - will refrain from taking long term credits denominated in hard currencies. They prefer credits in local currency or short term credits in foreign currency. They will be afraid of sudden and massive devaluation (such as happened in Mexico overnight).
Their lenders will also be afraid to lend money, because these lenders can not be sure that borrowers have the extra dinars to pay for the credits in case of a devaluation. Naturally, a devaluation increases the amount of dinars to pay for a loan in foreign currency.
This is bad, both from the standpoint macro-economic (the economy as a whole) - and from the micro-economic point of view (that of the single firm).
From the point of view micro-credit short-term economic need to be returned long before companies that have matured to the point lent of being able to repay the money. These short-term debt load that can alter its financial statements for the worst and sometimes their very viability at risk.
Since macro-economic point of view, it is always better to have more time with maturities of debt to pay less each year. The longer the credits a country (individual companies are part of a country) has to return - the better your credit standing with the financial community.
Another aspect: foreign credits are a competition for loans granted by the local banking system. If companies and individuals do not take loans from abroad for fear of a devaluation - they help create a monopoly of local banks. Monopolies have a way to set the highest price possible (interest rates) for their merchandise (= the money they lend). Access to foreign credits reduces interest rates through competition with the local credit providers (banks =).
It would be easy to conclude, therefore, is an important interest of a country open to foreign financial markets and provide their businesses and citizens with access to foreign credit.
One important way to encourage people (and companies are people) to do things - is to allay their fears. If people fear devaluation - a responsible government can not promise not to devalue its currency. Devaluation is a very important policy tool. But the government can insure against devaluation.
In many Western countries, you can buy and sell insurance contracts called forwards. They promise the buyer a certain rate of change in a certain date.
However, many countries have no access to these highly sophisticated markets.
Not all the coins can be secured in these markets. The Macedonian Denar, for instance, is not freely convertible, and that is not liquid: there is enough dinars to meet the needs of a free market. Therefore, no assurance can be given to these contracts.
These less privileged countries establish special agencies which provide (mainly export) firms with insurance against changes in exchange rates in a given period of time.
For example:
The company buys MAK harvesters and tractors from Germany. You have to pay in DM.
An international development bank offered to MAK a loan repayable in 7 years time in DM.
Today, MAK would be so afraid of devaluation, preferring to pay the equipment supplier as soon as it has cash. This creates liquidity problems at MAK: wages are not paid on time, raw materials can not be bought, production stops, MAK loses its traditional markets - all in order to avoid the risks of devaluation.
But - if the right government agency existed?
If government insurance against devaluation existed - MAK certainly take the loan of 7 years. It would take, say, 10 million DM.
MAK apply to the government agency with its business.
It would pay the government agency insurance an annual fee of 2.5% of the remaining loan (as is amortized and reduced with each monthly payment). This would be considered a proper financing expenditure and the company may deduct from their taxable income.
The government will provide MAK with an insurance policy. An exchange rate (say, 30 dinars to the DM) include in the policy.
Yes - at the time that MAK had to make a payment - the rate has been above 30 dinars to the DM - the government will pay the difference to MAK in DM. This will enable MAK to meet its obligations to its creditors.
MAK may cancel this insurance at any time. If, for example, suddenly signs a major contract with a German buyer of its products - will have income in DM which can be used to repay the loan. Then the government insurance will no longer be necessary.
This simple government assistance will have the following effects:
It will encourage businesses to obtain foreign credits.
It will create competition for local banks, reduce interest rates and foster a wider and better range of services offered to the public.
It will encourage foreign financial institutions to give loans to local firms once the risk of re-payment problems due to the devaluation is minimized.
Put Macedonia in the ranks of developed countries and export-oriented world.
It will facilitate activities with more long-term loans (such as modernization of plants for which longer terms of payment are required).
As time passes, the private sector can step in and provide their own insurance against devaluation.
Insurance companies in the world does - why not in Macedonia which needs it more than many other countries?
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