The Relationship between Exchange Rate Systems, Financial Market Performance, and Capital Flows in the Algerian Economy: An Analytical Study for the Period 2000-2024

Abstract

This study examines the impact of exchange rate regimes in Algeria on the performance of financial markets and capital flows during the period from 2000 to 2024. It employs a descriptive-analytical approach, supported by the analysis of a range of relevant economic and financial indicators, to assess the implications of the exchange rate regime's evolution on financial stability and the attractiveness of the Algerian economy for investment.

The findings demonstrate that the Algerian economy remains heavily dependent on oil price fluctuations, which are the primary determinant of foreign exchange reserve levels and monetary stability. Periods of high oil prices contributed to exchange rate stability and a relative improvement in the performance of financial markets. Conversely, the sharp decline in oil prices during the period 2014–2016 widened the gap between official and parallel exchange rates and increased exchange rate volatility, negatively impacting the attractiveness of foreign investment and capital flows. The study also reveals that the significant rise in oil prices during 2022, amidst the Russian-Ukrainian conflict, did not translate into a noticeable increase in foreign capital inflows. This suggests that the limited flow of these capitals is not solely due to circumstantial factors, but reflects deeper structural and institutional challenges. Therefore, the study emphasizes the need for comprehensive institutional and financial reforms, and for developing foreign exchange and financial markets to enhance their efficiency and increase their capacity to attract foreign capital sustainably.