When a state can no longer find anyone willing to lend it money, it turns to its central bank. The Algerian regime did just that in 2017, invoking a five-year exception. It has never stopped since. Officially discontinued in 2019, money printing has turned the Bank of Algeria into the state’s permanent banker.
The country is therefore spending money that has no corresponding production behind it, with households footing the bill through higher prices. As early as September 2020, Algerian journalist Abdou Semmar, who is now living in exile in France, broke down the first phase of this drift in a video. He recalled that the decision had been taken in October 2017, under President Abdelaziz Bouteflika, by Ahmed Ouyahia’s government. The regime called it “unconventional financing,” an elaborate term for printing money.
The backdrop was the oil crisis that began in 2014. The authorities had depleted the Revenue Regulation Fund, which was supposed to act as a buffer. The state could no longer afford to pay its roughly three million civil servants or resume stalled housing, highway and bridge projects. Rather than undertake reforms, it chose to preserve its foreign exchange reserves and finance in dinars everything that could be funded domestically.
The stated target was 3,050 billion dinars over 2017-2019, equivalent to $27.5 billion at the time. According to Abdou Semmar, the authorities printed 6,556 billion dinars, or around $55 billion and 32% of GDP: more than twice the ceiling they had set for themselves. By the end of September 2018, money creation had already reached 4,005 billion dinars, equivalent to $34 billion, as Le360 reported at the time. The safeguard did not survive even the first deadline. “This wealth is virtual. It is not real wealth; it is money that we have decided to create,” Abdou Semmar sums up.
“Monopoly money”: how the dinar became disconnected from reality
The journalist contrasts this practice with that of major economies. The European Union, China, Japan, India and the United States have also resorted to money creation, but to finance lending to businesses and households and thus revive economic activity. Algiers, by contrast, used it to plug holes, without producing anything in return.
He describes what followed as a chain reaction whose links no one at the top of the state wanted to see. More money in circulation fuels consumption. Since the country produces almost nothing beyond oil and gas, that consumption is met through imports. Demand outstrips supply, prices rise and the dinar falls. “The dinar has become Monopoly money. It is not connected to economic reality,” Abdou Semmar says. The result is a steady erosion of Algerians’ purchasing power and rising poverty.
Six years later, the regime had done nothing to correct the situation, as Le360 has already shown. Economist Abdelghani Youmni, speaking to Le360, draws the same conclusion and backs it up with figures. He begins by explaining how money creation works: “The central bank issues the money circulating in the economy by using the policy rate and interbank rates. It also creates the local-currency equivalent of foreign exchange reserves. In certain cases, it can finance the budget deficit by creating money ex nihilo, by turning on the ‘printing press.’ This unconventional practice expands the money supply.”
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In practical terms, “if a state needs to finance a budget deficit equivalent to one billion dollars, the central bank creates the equivalent amount by purchasing Treasury bills or government bonds in exchange for money that then circulates in the economy. The money supply increases, domestic demand rises, fueling inflation and currency depreciation,” Abdelghani Youmni explains.
He distinguishes this mechanism from conventional borrowing, which the Algerian authorities bypass in favor of the easier option: “Bond issuance or the use of Treasury bills is the most legitimate way to cover budget deficits. Money printing is the opposite of this mechanism because it does not draw on domestic or institutional savings. It relies on artificially stimulating the creation of money ‘out of nothing,’ without going through the real economy or productive activities.”
The economist acknowledges that monetary financing can be justified in certain circumstances: responding to an emergency, controlling the cost of debt or protecting a country’s credit rating with rating agencies. “At the same time, it can put pressure on interest rates and exchange rates. When import demand has constant elasticity, financing deficits through money creation often contributes to the depletion of foreign exchange reserves because of the depreciation of the local currency,” he says.
Money created without any corresponding production ultimately comes at a price, and consumers are the ones who pay. Money printing disconnects the currency from the real economy. It deprives money of its leverage over investment and growth and produces a crowding-out effect. Admittedly, the relationship between monetary expansion, growth and inflation also depends on the velocity of money, productivity gains and the strength of the financial system. But in Algeria, none of these buffers is working.
Money printing is, in reality, nothing more than an accounting entry: it credits the Treasury’s account with an amount that did not previously exist, either as savings or as foreign currency. It is neither debt nor an overdraft. The financing is free, and repayment is uncertain. This easy option allows the state to avoid any effort to reform taxation or impose monetary discipline.
“According to economists Irving Fisher and Milton Friedman, the money supply transmits inflation through prices. An increase in the money supply boosts demand, and demand drives prices up. Any increase in the money supply stimulates economic activity and employment, eventually leading, over the medium term, to higher wages, followed by increased demand and higher prices. Inflation does not depend on money alone. It can also be imported or result from cost shocks,” Abdelghani Youmni points out.
Oligarchs win, households lose: the Cantillon effect in action
Law 17-10 of 2017 authorized the Bank of Algeria to provide direct financing to the Treasury on an exceptional basis for five years. Nine years later, that deadline has long passed, and the 2026 Finance Law has even relaxed the ceilings and duration of advances. The regime did not put an end to the exception; it made it permanent. “Algeria was hit by the fall in oil prices, from $110 in 2013 to $30 in 2017. The country derives 78% of its tax revenue and 98% of its income from hydrocarbon rents. It belongs to the group of economies exposed to Dutch disease,” our interviewee recalls.
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“The decline in foreign exchange reserves, from $194 billion to $97.3 billion in four years, made the public deficit worse. The dinar lost 30% of its value on the official foreign exchange market, while the exchange-rate premium on the parallel market exceeded 66%. This deterioration led the state to order the central bank, which is neither sovereign nor independent in Algeria, to turn on the printing press while waiting for oil and gas prices to recover. This irresponsible choice, because it is lasting, if not permanent, creates a Cantillon effect that benefits companies run by oligarchs, which profit from subsidized public procurement, as well as asset holders. Households whose wages or pensions remain fixed lose purchasing power,” he says. Abdelghani Youmni had previously described this inexorable decline of the dinar for Le360.
While households grow poorer, a central bank placed under the executive’s authority accumulates claims on the state. One figure illustrates the scale of the phenomenon. “In Algeria, the Bank of Algeria’s net claims are growing faster than external and domestic public debt. According to the IMF’s latest projections, public debt will account for just 53.2% of GDP in 2026, but debt held by the central bank stands at 8,217 billion dinars, or 19.1% of GDP. In reality, when advances and financing through money printing are combined, the central bank holds more than 36% of Algeria’s public debt,” Abdelghani Youmni says.
This drift is no accident. It is the continuation of a longstanding refusal to reform the country’s financial system. “To understand Algeria’s relationship with money printing, we need to look back at its monetary history. In the 1980s, the state-controlled economy relied on banks, most of them publicly owned, to finance state-owned companies. Those banks were themselves financed by the central bank. Then, in the 1990s, came the refusal to liberalize the financial sector, privatize the banking system or loosen controls on credit and money,” he adds.
“The 2000s were marked by abundant oil revenues, which allowed the state to finance public spending and economic subsidies through seigniorage, without resorting on a massive scale to direct money creation. But the reversal in 2017 changed the picture and pushed the Algerian state to make money printing permanent, as a flexible financing mechanism for domestic demand kept on life support and external demand that depends solely on oil and gas exports with no added value,” he continues.
The 2027 budget confirms that this trajectory is not changing: the deficit widens from one finance law to the next, with no accompanying reforms. It is even made to look more presentable through a GDP figure inflated by $62 billion compared with IMF estimates, as Le360 revealed. “The 2026 Finance Bill showed a deficit of 5,000 billion dinars, or 12% of GDP. The 2027 Finance Bill puts it at 8,600 billion dinars, 1.7 times higher. Revenue is expected to reach 9,251 billion dinars, while spending exceeds 17,883 billion dinars. Algeria faces four major challenges: rapid population growth and a large demographic dividend with no economic prospects, dependence on hydrocarbons alone, the absence of tax reform and the lack of a development model,” the economist explains.
When citizens pay the price of money printing
The cost of this reckless course does not fall on those who made the decisions. It falls on Algerians, through higher prices and a weaker currency. Abdelghani Youmni draws on World Bank data to measure the damage. “World Bank data point to two major trends between 1970 and 2025: historically high inflation, averaging 8.4%, and a sharp depreciation of the Algerian dinar, which now stands at 135.91 dinars to the dollar. In Morocco, over those 55 years, inflation remained contained at 4.13%, while the dollar-to-dirham exchange rate averaged 9.77. Inflation in Algeria is endogenous in nature. It is linked to speculation, dependence on imports for 90% of public and private consumption needs, and the dominant positions held by powerful importers, who form a monopolistic oligarchy,” he argues.
“We are dealing here with macroeconomic and microeconomic vulnerabilities that generate negative externalities for the economy. Added to this is the gap between the official exchange rate and the parallel-market rate, a constant feature since the 1970s that the state has more than tolerated. Parallel-market rates are not included in the calculation of the consumer price index, leading to an underestimation of imported inflation and contributing to the partial dollarization of transactions,” he says.
When an economy lives off oil revenues and money creation, comparisons with Venezuela are inevitable. The economist points to similarities that should worry Algiers, as well as important differences. “Venezuela is one of the world’s largest oil-producing countries. Yet gasoline and diesel are imported and subsidized by the state. In 2022, Venezuela’s industrial sector had three times fewer companies than in 2000. Some 45% of the working-age population is employed in the informal sector. The state restricts imports of new cars, and used cars cost more there than new cars in other countries,” he observes.
The Venezuelan precedent serves as a warning mirror. “The two economies share a heavy dependence on hydrocarbons, public spending largely financed by resource revenues, substantial subsidies that discourage private initiative and risk-taking, and structural difficulties in diversifying production. However, the two countries differ significantly in terms of external debt, energy infrastructure and monetary stability. Algeria’s strengths are considerably greater. Despite its weaknesses, it has not experienced the GDP collapse or hyperinflation that caused famines and social unrest and brought down the Venezuelan regime,” Abdelghani Youmni explains.
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The resource-rent trap and the avoidance of reform
The remedies have been known for years. The Algerian authorities prefer to put them off because they would affect the resource rents and the networks that benefit from them. “Algeria is often portrayed as the champion of an economic model of ‘neither-nor’ — an approach that seems to evade both growth and development. This model relies exclusively on hydrocarbon rents. Such dependence weakens private-sector supply and puts pressure on public subsidies and social transfers. Its severity leads to a scarcity of jobs and places heavy pressure on the balance of payments and the state’s spending obligations,” the economist says.
As early as 2017, the Bank of Algeria itself had sounded the alarm over the dangers of monetary financing of the public deficit, warning of an inflationary spiral and a depreciation of the dinar, both exacerbated by dependence on imports of inputs, finished products and consumer goods. “The most obvious way to address the symptoms of Dutch disease and the resource curse is undoubtedly to slow incoming financial flows or channel them toward export-oriented and processing industries, in order to drive an import-substitution model. Norway is an example: an industrialized oil-producing country where inflation did not exceed 4.06% between 1976 and 2026 and average growth stood at 2.9%,” our interviewee explains.
“The comparison is admittedly difficult, but the United Arab Emirates have established special sovereign wealth funds to turn oil revenues into international investments. It is important to note, however, that Algeria’s stock of reserves could be channeled into industrializing the country and creating jobs for the millions of young people who are NEET — not in employment, education or training. Algeria could draw inspiration from Morocco’s experience: over 15 years, Morocco has mobilized more than $150 billion to build port, airport, highway and railway infrastructure. It has thus transformed its economy, becoming an international hub for the automotive and aerospace industries and one of the world’s leading players in maritime logistics,” he says.
The gap with neighboring Morocco is also clear when it comes to taxation. The Algerian state forgoes revenue that other countries collect, then makes up the shortfall by printing money. “Algeria collects 1.8 times less in taxes than Morocco. It must undertake tax reform to reduce the money supply, strengthen its capacity to finance public investment and move away from relying solely on hydrocarbon taxation. It needs to broaden the tax base, reduce tax loopholes that benefit oligarchic cartels controlling foreign exchange reserves and parallel currency markets, cut VAT exemptions that do not benefit consumers, digitize tax declarations to reduce channels for corruption and recover outstanding tax arrears,” he says.
Public spending must also be rationalized. “Energy and mobility costs are heavily subsidized. Morocco and Algeria are at opposite ends of the spectrum. In the Kingdom, energy taxation is a major source of budget revenue. In Algeria, energy subsidies are a burden on the state. Both countries need to find a middle ground,” Abdelghani Youmni adds.
The fundamental question remains. After six decades of independence and hundreds of billions of dollars in oil revenues, Algeria still has no development model. “It needs one to create the conditions for the economic emergence it currently lacks. Its population growth and labor force exceed its economic potential. It must increase both tax revenue and non-hydrocarbon export earnings. This supply-side policy must be built around diversification. Several sectors can contribute, particularly agribusiness, higher value-added petrochemicals, fertilizers, manufacturing, digital services and renewable energy,” he says.
The expert, however, rejects equating Algeria with Venezuela or Zimbabwe. A distinction that offers little reassurance to the country’s ruling elite. “I do not think that is necessary, because both countries are very different from Algeria. It can collapse without going through hyperinflation,” Abdelghani Youmni says ironically.
On November 16, Algerian lawmakers will vote on a budget whose deficit, as has been the case every year since 2017, will largely be covered by money printing. The regime had promised a five-year exception. Nine years later, the exception has become the rule and the dinar has become play money.
