Return to protectionism, in this day and age, is it feasible ?

by | Jan 19, 2017 |

Return to protectionism, in this day and age, is it feasible ?

Let’s ponder October 1929 and October 2008

For the Chinese president, Xi Jinping, who during the World Economic Forum in Davos, paradoxically seeming to be defending Free Trade, threw at the new American president, Donald Trump on January 17th, 2017 that no one would emerge as the winner of a trade war, or as he put it, a Return to protectionism, in this day and age, is it feasible ?

“It doesn’t help to blame globalization. Any attempt to stop trade in capital, technology, and products between countries is impossible and contrary to history. We must remain committed to the development of free trade and investment (transnational), and say no to protectionism. We got to ‘rebalance’ globalization, and make it stronger, more inclusive and more sustainable”. In this context it is useful to recall the fundamentals of the crisis of 1929 and 2008.

The 1929 Crisis.

The 1929 crash is caused by a speculative bubble, whose genesis dates back to 1927. It was a new system of credit purchase of shares based on investors buying securities with 10% coverage that started it all. It was ‘Black Thursday’ October 24th, 1929 that the famous crisis broke out in the United States.

le krach boursier de Wall street plongeant l’économie américaine et l’économie mondiale, dans la tourmente et ce malgré l’apparente santé de l’économie américaine dont les bases de sa croissance étaient pourtant faibles.

The stock crash of Wall Street plunged the American and the global economy in turmoil, and this despite the apparent health of the U.S. economy of which bases of its growth, were however weak.

October 2008

There are many similarities between the crisis of October 1929 and October 2008. Economic boom prior to the crisis, rising debt and divorce between the real and financial impact on the real economy with the fall of technology stocks.

But in contrast with 1929, it is the interconnection of economies with stronger global regulation where the developed countries economies being in deflation (low inflation, unemployment, negative growth) and not stagflation (inflation and unemployment decline) that characterised 2008.

As evidenced by the socialization of losses of some banks, the rapid response of the central banks of the US Fed., the European Central Bank, the Bank of England, Japanese, Russian, and even Chinese and Indian banks in coordination so as to break the vicious circle in the lack of confidence and the blocked interbank lending that is the lifeblood of the functioning of the global economy.

All economic and reliable financial system is based on trust. With repeated bankruptcies, interbank credit source of the expansion of the global economy has tended to dry out especially at the investment banks that have experienced an unparalleled expansion in the contemporary period.

However, unlike a universal bank, a Merchant Bank has not the possibility, in case of difficult market conditions, to rely on deposits of individuals to raise money for the short term, although they continue to issue short-term debt to finance their business.

However, more financial institutions from which investment banking sourced finance do refuse in times of crisis to lend for lack of confidence in the ability of repayment of these banks. Generally the essence of the crisis of both 1929 as of 2008 are a distortion of the Foundation of capitalism as describing by the founders of political economy based on the enterprising creators of wealth, Karl Marx did not write about Socialism but the Capital.

This crisis is therefore related to the increasing financialisation in disconnection with the real economy and not in symbiosis of any economic and social dynamics forgetting that labour is certainly a price but also creator of value and growth through consumption. Indeed, with this increasing financialisation, we have two types of shares ownership.

The direct holding (those who own directly) and the indirect holding (those who own through an intermediary such as management, life insurance companies, pension funds, etc.). The new fact is changing fast and important type of shares held by households. The direct holding of shares becomes a minority whereas the indirect holding grew strong.

It is the pension funds that control Wall Street whilst managing more than one third of the market capitalization of the USA today. These malfunctions have been materialised with the mortgage crisis of the Subprime in August 2007; a crisis that has spread across the global stock markets with great losses which I summarize in five steps:

  1. The banks made mortgages available to insolvent households or with few guarantees, at high interest rates;
  2. Dissemination of bad debt in the market: to evacuate the risks, banks “securitised” their debts, meaning that they cut their debt in financial products to resell them on the market. Globalisation did the rest, by disseminating these risky securities in the portfolios of investors from all over the world. Hedge funds have been big buyers of Subprimes, often on credit to boost their yields (up to 30% per year), and played the leverage effect, hedge funds borrow up to 90% of the sums required;
  3. Reversal of the U.S. real estate market: towards the end of 2005, U.S. interest rates began to rise while the financial market has faltered. Thousands of households have been unable to honour their payments causing losses for banks and investors who bought bonds saw their value collapse:
  4. Confidence crisis: the banks found themselves in a situation where as in a poker game, they know what they have on their balance sheet, but not what is in that of others because these bad mortgages were bought everywhere in the world and we don’t know what is the distribution of risk where a serious crisis of confidence and since July 2007, this situation causes the exchanges to fall and paralyzes the interbank market; banks are paying more or very little fearing that their counterparts are in a red line;
  5. Intervention of central banks: facing the paralysis in the market, the Central Banks intervened massively in early August 2007 by injecting hundreds of billions of Dollars and Euros in cash.

November 15th, 2008 : G20 crisis meeting in Washington, USA.

Elle s’est articulée autour de  cinq objectifs dont  le renforcement du système de régulation qui ne saurait signifier protectionnisme. Premièrement de dégager une réponse commune à la crise financière-deuxièmement ouvrir les pistes d’une réforme en profondeur du système financier international -troisièmement prendre de nouvelles initiatives pour parer à d’éventuelles faillites bancaires et imposer aux banques de nouvelles normes comptables -quatrièmement des règles plus strictes sur les agences de notation, la titrisation et les parachutes dorés

This meeting focused on five objectives, including the strengthening of the system of regulation which does not mean protectionism.

  • First to identify a common response to the financial crisis;
  • Second to open tracks for a reform of the international financial system;
  • Third to take new initiatives to counter possible bank failures and impose on the banks of new accounting standards;
  • Fourth to adopt stricter rules on credit rating agencies, securitisation and the Golden parachutes;
  • Finally, in fifth to increase public spending through coordinated budget deficits, but for the benefit of energy savings for the building and infrastructure development and clean auto technology, questioning the European stability pact (3% of GDP and spending on / GDP less than 60%.)

But it is clear that in this month of January 2017, the global economy is still characterized by turbulence with protectionist options but in a framework of unbridled internal liberalization wanting back in vogue Adam Smith’s invisible hand of the market, which is likely to repeat the scenario of the 1929.  However, the strategic goal is to rethink the current global economic system that promotes bipolarisation North / South, poverty detrimental to the future of humanity, which is also accelerated by the most questionable governance on behalf of most of the leaders of the South.

In short, the return to global protectionism is a chimera and realism will prevail in the end.

In the meantime, let us meditate the crisis of October 1929 and that of October 2008. The large deficit of the American balance of payments, which will be accentuated with the new spending program announced by the new president (with the risk of a loss in value of the Dollar), is currently offset by the large flows of capital from outside the US. . Let us for the sake for humanity, put aside all nationalism, chauvinism that are source of tensions, hatred and war and meditate this quote that is sometimes attributed to French president Charles de Gaulle, under the title “Patriotism is loving his country, Nationalism, is hate of others’” and sometimes to Romain Garyn in his book “European Education” published in 1945 under the title “Patriotism is the love of one’s kin Nationalism is hatred of others”.

Year 2016 Review using 12 Charts


The World Bank produced the following article on Year 2016 Review using 12 Charts.  It is written by  Tariq Khokhar  with co-author: Donna Barne on December 22nd, 2016.  We republish the first 7 items of the article here and would seriously recommend reading the rest in its original publication by clicking the article title below.  One would also notice that the video in question in the article can be visualised only in its original bedding.  

Tariq Khokhar

Year in Review: 2016 in 12 Charts (and a video)


Between the social, political, and economic upheavals affecting our lives, and the violence and forced displacement making headlines, you’d be forgiven for feeling gloomy about 2016. A look at the data reveals some of the challenges we face but also the progress we’ve made toward a more peaceful, prosperous, and sustainable future. Here are 12 charts that help tell the stories of the year.

1.The number of refugees in the world increased.

At the start of 2016, 65 million people had been forcibly displaced from their homes, up from 60 million the year before. More than 21 million were classified as refugees. Outside of Sub-Saharan Africa, most refugees live in cities and towns, where they seek safety, better access to services, and job opportunities. A recent report on the “Forcibly Displaced” offers a new perspective on the role of development in helping refugees, internally displaced persons and host communities, working together with humanitarian partners. Among the initiatives is new financial assistance for countries such as Lebanon and Jordan that host large numbers of refugees.




  1. The global climate change agreement entered into force.

The pact negotiated in Paris in 2015 was ratified by 118 of the 194 countries that signed it, triggering new commitments to combat global warming. One of the agreement’s major goals is to promote a shift to low-carbon energy. Demand for renewable energy is picking up in developing countries as prices decline. In May, Africa saw its lowest solar price to date when the winning bid to develop large-scale photovoltaic solar plants in Zambia came in at 6 cents per kilowatt hour – or 4.7 cents/kwh, spread over 20 years.  That followed bids as low as 3 cents in the United Arab Emirates and 4.5 cents in Mexico. Renewables are now cost competitive in many markets and increasingly seen as mainstream sources of energy, according to REN21.


3.Global trade weakened.

In 2016, global trade growth recorded its weakest performance since the global financial crisis. Trade volumes stagnated for most of the year, with weak global investment playing an important role, as capital goods account for about one third of world goods trade. Trade has been a major engine of growth for the global economy and has helped cut global poverty in half since 1990. A trade slowdown, therefore, could have implications for growth, development, and the fight against poverty.


  1. More people had access to mobile phones than to electricity or clean water.

Access to mobile phones has surged in low- and middle-income countries, but many of the other benefits of the digital revolution – such as greater productivity, more opportunity for the poor and middle class, and more accountable governments and companies — have not yet spread as far and wide as anticipated, according to the World Bank’s 2016 World Development Report on the Internet, “Digital Dividends.” The report says greater efforts must be made to connect more people to the Internet and to create an environment that unleashes the benefits of digital technologies for everyone.


  1. A third of all people were under the age of 20.

In around 40 African countries, over 50% of the population is under 20. By contrast, in 30 richer countries, less than 20% of the population is under 20. As the 2015/2016 Global Monitoring Reports notes, the world is on the cusp of a major demographic transition that will affect countries along the development spectrum.


  1. 600 million jobs will be needed in the next 10 years.

One third of the world’s 1.8 billion young people are currently neither in employment, education nor training. Of the one billion more youth that will enter the job market in the next decade, only 40% are expected to be able to get jobs that currently exist. The future of work is changing, and the global economy will need to create 600 million jobs over the next 10 years to keep pace with projected youth employment rates.


  1. 1 in 3 people did not have access to a toilet.

The UN estimates that 2.4 billion people still lack access to improved sanitation facilities, nearly one billion of whom practice open defecation. Good sanitation is a foundation for development – conditions such as diarrhea are associated with poor sanitation, and left untreated, can lead to malnutrition and stunting in children. This year’s first High-Level Panel on Water brought together world leaders with a core commitment to ensuring the availability and sustainable management of water and sanitation for all.




The Reasons for the Slippage of the Algerian Dinar

In the parallel market,

Economic laws being generally immune to any political slogans and bureaucratic measures; how to explain the reasons for the slippage of the Algerian Dinar that for €1 on the parallel market in this month of December 2016 would fetch about DZD186 and DZD168 for a Dollar.

And most significantly why is there a gap with the official market that is DZD118 a Euro and DZD111 a Dollar?

Are we not moving towards the DZD200 a Euro with the inevitable inflationary impact due to the fact that all prices tend to often line up with those of the parallel market?

Will it not remind us of issues related to the level of the general lack of production and / or weak productivity, to the bureaucratic measures without strategic vision, and to either the monetary illusion or its mechanics interpretations that in the end have increased distrust towards this national currency?

To reply to these queries, let us start with :

A Short history of the the Algerian Dinar (DZD).

Set up in 1964, the DZD was on a par with the French Franc until 1973.  Since 1974, the value of the Dinar has been set following the evolution of a basket of 14 currencies.  We have seen depreciation between 1986/1990 of 150% from DZD4.82 to DZD12.191 a US Dollar, followed by a second one, of the order of 22% in 1991.  With the cessation of payment in 1994 and following the rescheduling and conditions imposed by the IMF, there was a new devaluation of more than 40% followed by its commercial convertibility in 1995/1996.

The evolution of the official exchange rate has evolved from 2001 to December 12, 2016 thus:

  • 2001 – DZD77.29 a Dollar
  • 2005 – DZD73.35 a Dollar
  • 2008 – DZD64. 58 a Dollar
  • 2010 – DZD74.39 a Dollar
  • 2015 – DZD100.46 a Dollar

On December 12th, 2016, the rating of the Dinar got close to DZD111 a Dollar and DZD118/119 a Euro at the official rate, a difference of 57% with reference to the parallel market and a slippage of about 60% from the 2010s.

This accentuates the inflationary process, with the risk of two-digit inflation by end of 2016, due to the fact that 70% of the needs of households and of public and private businesses are met by imports which with the falling price of oil are making the State no longer able to subsidize as it did in the past.  The value of the Dinar that is function of the trust and a productive economy, which in the case of Algeria being an economy fundamentally of a rentier type, will contradict the basic laws of economy where any devaluation should in principle boost exports.  Paradoxically, we see that when the price of the Dollar decline and the rise of the Euro, the Bank of Algeria make the Dinar slide (whilst avoiding to talk of devaluation) for political reasons.

Why then this accounting trick ? The answer or main reason could be that by devaluing the Dinar rate to the Dollar, is the artificial increase in oil tax that fluctuates depending on the price of a barrel, between 60 and 70%.  Because oil and gas revenues are converted into Dinars, together with Customs taxes on hard currency imports being calculated in Dinars, would only lead to a definite devaluation.  All this hide the importance of the budget deficit and thus the effectiveness of the State through its public expenditure budget and artificially inflates the Regulatory Revenue Fund as calculated in Algerian Dinars.

Inflation being the result, a certain distrust towards the Algerian Dinar that is officially administered and therefore disconnected with the real world as represented by parallel market.  In General, both foreign and local investors are wary of an administered low currency.  The real value of a currency, which is only a medium of Exchange could be interpreted as a nominal value adjusted for inflation.

Hoarding would not create value.  It is the work through continuous innovation, whilst adapting to this ever more interdependent world, turbulent and in perpetual upheaval that is the source of wealth of a Nation.  The value of a money depends on the confidence in that economy and all related politics of production and productivity, as shown by the Classics.  In fact, the essence of this situation lies in the dysfunctions of the different structures of the State because of its excessive intervention that distorts the market rules forcing households and operators to circumvent them.

So when the authorities immoderately tax and regulate excessively or by declaring illegal the activities of the free market, it skews the normal relations between buyers and sellers.  In response, buyers and sellers naturally seek ways around all Governments imposed obstacles.

What then are the reasons for the devaluation of the Dinar on the black market?

I count seven and here there are :

First, the gap could be explained by the reduction in the supply due to the fact that the global economy slowdown, combined with the death of many Algerian retirees, has largely paid off savings of the emigration.  This decrease in the supply of currency was offset by fortunes acquired regularly or irregularly by the Algerian community who transfer regularly or irregularly currencies into Algeria. Conversion of money from corruption, playing on the distortion of the official reference exchange rate (you charge me DZD150 a Dollar instead of a commodity bought 100 with the complicity of foreign operators; operations easier and faster in the trade) clearly shows that the parallel currency market is much more important than the savings of the emigration that explain the soaring real estate prices notably in urban areas.

Second, demand comes from traveling ordinary citizens: (tourists, medical tourists abroad and Hajis) because of the weakness of the derisory travel allowance. But it is the travel agencies that failing to benefit from the right to free exchange, they being importers of services also tend to use the black market currencies. They mostly export currencies instead of import as would the tourism logic like in Turkey, Morocco or Tunisia.

Thirdly, the strong demand comes from the informal sphere that controls 40 to 50% of the money supply in circulation  and 65% of the different market segments; fruits &vegetables, red &white meat market, and through imports using small resellers, because it is an informal financial intermediation away from State circuits. This sphere, which is the product of bureaucracy, everything is handled in cash thus promoting dialectical relationships with rentier segments favouring tax evasion and corruption.

Fourth, the gap is explained by the passage of the REMDOC to the CREDOC documentary credit, explaining the easing measures, in 2013 which largely penalized small and medium-sized companies representing more than 90% of the industrial fabric in decline (5% in GDP). There are many SMEs that to avoid supply disruptions use parallel currency market. The Government has in the past increased the allowance upto DZD4 million, but this is not enough, explaining the easing measures in the 2017 budget bill.

Fifth, many foreign businesses including domestic operators use the parallel market for their transfer of currency, since every Algerian is entitled to €7200 per transfer trip, using Algerian employees to increase the amount.

Sixth, the gap can be explained by the weakness of production and productivity; the injection of monies without productive counterparties generating a certain level of inflation and depreciation of the Dinar. According to an OECD report, the productivity of Algeria’s is one of the lowest in the Mediterranean basin. The industrial fabric that some would revitalize without a strategic vision, according to the old mechanical vision, without seeking to take into account new technological changes and global managerial methods is a strategic error that the Algeria might pay dearly in the medium term.

Industry representing less than 5% of GDP and of these 5%, more than 95% are PMI/SMEs  that are uncompetitive, costs indirectly devalue the value of the Dinar. There is no proportionality between public spending and the low impact, the average growth rate not exceeding 3%, is source of inflation and explains the deterioration in the rating of the Dinar (imbalance of supply and demand that is supplemented by a massive importation of goods and services) on the open market against currencies the Bank of Algeria supported artificially thanks to oil revenues.

If foreign exchange reserves tended towards zero, the Euro open market to trade more than DZD300 and the official exchange fluctuate between DZD200/250 a Euro, where the importance of an external targeted debt, only on productive activities, in order to avoid the complete depletion of foreign exchange reserves which take the value of the dinar to over 70%.

Seventh, to guard against inflation, and therefore deterioration of its Dinar, the Algerian citizen does not place only his assets in land, real estate or gold, but would apportion his savings in currencies. Many Algerians benefit from the crisis of real estate, especially in Spain, acquiring apartments and villas in the Iberian Peninsula, in France and some in the USA, Latin America and tax havens. It is a choice of security in a country where the evolution of oil prices is decisive.

Political uncertainty, and a certain psychosis created by financial scandals, is pushing many officials to sell their assets and purchase property abroad. Also many households put in the prospect of a fall in oil, and given the commodities erratic fluctuations revenues, on the decline since year 2O13, buy the currencies on the informal market. (Ref paper by Professor Abderrahmane Mebtoul “Informal Sphere in the Maghreb and how to integrate it into the real sphere” Institut français des relations internationales (IFRI) Paris – Brussels December 2013 – 60 pages)

In summary, distortions between the formal and informal market reflects the weakness of local productive fabric, oil based rentier economy could only give an artificial official rating of the Dinar. An objective an analysis of inflation which has repercussions on the real value of the Dinar, would suppose a serious grasp of the dialectical relationship between development, the distribution of income and consumption by strata models. Subsidies and the distortion of the exchange rate between the official and parallel markets with neighbouring countries are basic explanations of overbilling and the spilling over of a good number of products out the borders. Administrative measures can only be one-off, otherwise an army of controllers would be needed. The solution lies simply in a new type of governance, ideally with new mechanisms of regulation, local production in segments of value-added in internationalised sectors, so of successful companies.

Read more on these 2 previously published here contributions Algeria’s currency rating between 2017 and 2020 and

The Algerian Dinar great slide by