Troukler
THE BIG SAUSAGE IS ABOUT TO BURST!
(A Lesson in Devaluation)
Devaluation is a reduction (emphasis on the word reduction) in the value of a currency with respect to other monetary units. In common modern usage, it specifically implies an official lowering of the value of a country’s currency within a fixed exchange rate system, by which the monetary authority, in our case the Central Bank, under the direct control of the Governor formally sets a new fixed rate with respect to a foreign reference currency. In contrast, (currency) depreciation is most often used for the unofficial decrease in the exchange rate in a floating exchange rate system. The opposite of devaluation is called revaluation. However, Depreciation and Devaluation are sometimes used interchangeably, but they always refer to values in terms of other currencies. Inflation, on the other hand, refers to the value of the currency in goods and services (related to its purchasing power).
The value of currency is determined by the interplay of money supply and money demand. As some countries hold floating exchange rates, others maintain fixed exchange rate policy against the United States dollar or other major currencies, in our case pounds sterling, US dollars and Euro. This was the case here in Seychelles not so long ago before the “big banger” on the orders of his political masters got us involved in the currency basket. Under the fixed exchange rates system we had in place, persistent capital outflows better known as trade deficits have lead the SPPF Government to abandon their fixed rate policy, resulting in devaluation. They are hoping against hope that eventually persistent surpluses and capital inflows will lead towards revaluation. However, that devaluation would reduce the current account deficit depends on the Government sticking to the implemented measures resulting in: the sum of exports and imports balancing each other out or better still our export exceeding importation.
The main reason behind the persistent economic crisis in Seychelles is because the SPPF, over the years, have deliberately printed money (constantly) to beef up budget deficits. We now find ourselves without any foreign exchange reserve, which has caused our currency’s value to decline very rapidly after devaluation. This is what occurred during the 1994 economic crisis in Mexico. Our present predicament is no surprise to this Government. It has been a long time coming. After obstinately refusing to take advice from anyone and recklessly experimenting with communist economic dogma, it was only a question of time before the cookie crumbles. Those were during the times of former President Rene’s reign, when Michel was fully in control of the finacial affairs of the country. The IMF, the World Bank, the Opposition and others pointed out the dangers ahead, Michel, on the orders of Albert Rene, chose to ignore everyone, even his own monetary advisors who have since left his employment. The President knows best attitude was prevalent then. The only man left standing is the Governor of the Central Bank. The two men have stuck by each other’s side for reasons best known to themselves.
However, there is now a growing belief that soon the big economic sausage at the Central Bank will rupture. We are not certain of the state of its content. In the event that it does rupture and burst open it is expected that the inside will be in a decaying state. This is due to over indulgence of the economic meat and juices by the privileged few. The populace have seen very little of these goodies in the last thirty-one years of SPPF RULE! We will have to enlist the help and assistance of foreign help possibly in the form of an IMF reform program, most probably, one similar to what was rejected by former President Rene and former Finance Minister Michel. This is a state of affairs enough to make the departed former Governor of Central Bank, the late Mr. Guy Morel, turn in his grave….
(SOS) Save our Sausages!
