Monday, January 12, 2009

Serbian dinar is falling fast

Due to the Ukrainian gas crisis and the ongoing economic crisis the dinar is falling fast - despite the central bank spending $40 mln in one day to support it.

I have already repeated pled for a more sensible currency policy. The dinar is going to fall much more as Serbia's current account, trade and government deficits are simply not sustainable in the present economic climate. The Serbian central bank can react in two ways:
- it can fight the decline because it doesn't like the effect that the Serb companies that have lent in foreign currencies will have to pay back more and may get in financial trouble. This strategy amounts to subsidizing currency speculators. In the end the currency will still end low, but Serbia will be out of money.
- it can also let the fall happen and spend the money that it saves on supporting the companies that get in trouble because of it.

Until now Serbia chooses the first option. Rather foolish in my opinion.

No comments: