Parallel Currency Markets and the Informal Economy in Algeria: A Conceptual and Institutional Analysis

Abstract

The parallel currency market (PCM) in Algeria constitutes one of the most structurally entrenched components of the country's informal economy. Despite successive waves of monetary liberalization and institutional reform since the early 1990s, the PCM has demonstrated remarkable persistence, reflecting deep-seated deficiencies in Algeria's monetary governance architecture. This review article examines the conceptual foundations, structural determinants, and institutional dynamics that account for the PCM's persistence, and evaluates the adequacy of public policy responses deployed by the Bank of Algeria. Drawing on monetary economics, exchange rate theory, and institutional economics - particularly North's (1990) framework of path-dependent institutional change - the study traces the PCM's origins to the era of centralized planning (1962–1990), when strict exchange controls generated systematic overvaluation of the Algerian dinar (DZD) and created conditions favorable to informal currency exchange. Five interacting structural drivers are identified: restricted DZD convertibility; the persistent absence of a viable licensed exchange bureau network; diaspora remittance flows; import-side demand pressures; and capital flight dynamics. Comparative evidence from Egypt and Tunisia demonstrates that PCM persistence reflects a regional pattern of delayed exchange rate adjustment and incomplete institutional reform. IMF data confirm that the parallel market premium reached 62% in November 2023. The article concludes that sustainable PCM reduction requires comprehensive macroeconomic reform combining full DZD convertibility with genuine export diversification beyond hydrocarbon dependence