Recently, Serbia commemorated the 140th anniversary of the National Bank. On this occasion, speeches were delivered, with President Vučić stating, “For a solid 12 years, we have maintained stability in our national currency.” But is this assertion accurate?
Currency stability
Currency stability hinges on whether its purchasing power remains consistent—whether the same basket of goods and services can be bought for 1,000 dinars yesterday and today. Examining the inflation rate reveals that the dinar does not hold steady as a currency.
Even during Governor Tabaković’s tenure at the National Bank of Serbia, after several years of low inflation, the dinar significantly lost its purchasing power from 2020 onwards. Therefore, claiming that the dinar is stable contradicts the reality. It ranks among the worst performers in its class.
The impact of global inflation
Wasn’t 2020 characterized by a European and global inflationary surge, triggered by the pandemic and substantial fiscal and monetary interventions? This assertion holds partially true—while Serbia experienced notably higher inflation than the Eurozone, measuring dinar stability solely by purchasing power is unjustified. What cost 1,000 dinars in 2015 now requires 1,442 dinars, whereas in the Eurozone, the increase in prices was only half as much—items that cost 10 euros in 2015 now cost 12.3 euros.
Foreign exchange stability
Contrary to stability through purchasing power, the dinar appears stable in terms of its exchange rate level. The dinar has unofficially fixed at 117 dinars per euro since around 2014, surviving major global upheavals and conflicts in Europe with its exchange rate unchanged.
However, the nominal exchange rate alone lacks significant meaning, as it disregards currency stability stories. It suggests that if we measure the dinar against another currency, we acknowledge its limited value. Moreover, the real exchange rate is crucial, aligning purchasing power. While the nominal exchange rate remains stagnant in exchange offices, inflation disparities between the Eurozone and Serbia effectively appreciate the dinar. For instance, purchasing a kilogram of fruit in Germany for 1 euro or 117 dinars in Serbia years ago has now risen to 1.2 euros or 170 dinars, making importing more cost-effective than local production.
The decline of the dinar
Regrettably, the dinar has forfeited some fundamental monetary functions, overtaken by the euro. Primarily attributed to the 1993 hyperinflation crisis that devastated the dinar, it struggled both pre- and post-hyperinflation, often facing double-digit inflation rates.
Trust, painstakingly built, can easily erode. Consequently, people have shifted from the dinar to the euro. Today, the dinar circulates mainly for tax payments and minor purchases, while the euro dominates discussions on wages, pensions, vehicle prices, and property values. Even transactions in dinars often reflect euro equivalents. Most bank deposits and loans, whether to businesses or individuals, are denominated in euros.
Ultimately, while the dinar remains fixed like a stone in a road, its utility is limited and often obstructs passage.
