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​Monetary Policies In Iraq And Proposals For The Next Phase Applications

​The unveiled pessimism among several of our members is certainly understandable.  We are all, or at least most of us, frustrated that the CBI has seemed to be unable to move “around the corner” leading to a rise in the value of the dinar.

Still, this article for once outlines in detail, even though it is diffcult to understand in places, the fact that the CBI definitely has a plan and that the plan includes, first, stabilizing the dinar rate, then second, raising the rate, and, third, eventually removing the large notes from circulation ( a clear goal of at least $1 for the dinar).

Therefore, if nothing else, this article is a confirmation that the overall plan remains in place in spite of the obvious drawbacks.

The article is also fairly clear on those elements that have caused the “plan” to be stalled to a large extent.

I was interested to find that, in addition to those things that we have always known, there were a couple new points made that make the lack of progress more understandable.

One of those new items was statement that the banks in Iraq are sitting on a large number of “unperforming debts” that probably date back to 2003, or close to that time.  Because these loans are not performing, according to the article, the banks are hamstrung in the sense that they have reduced working capital for new investment.

Fortunately, for the first time, the CBI has stated that it recognizes this problem and that it is making plans to retire these debts (remove them from the bank’s portfolios) so that there will be a freer flow of capital for the banks to lend in the near term.

The artical is also specific in that it sees that the role of the government is obstructive rather than helpful in moving toward a more open market driven economy.  I would look forward to seeing the CBI take aggressive action to loosen the strings on  the economy by the government, to the extent that it can.

This will not be easy, but with Saleh next to Abadi at least there is a potential conduit for recommendations to pass directly to Abadi.

It is my view that Abadi is a good guy and that he is actually looking for ways to help move this process along.  Recall earlier that he even recommended suspension of the Constitution so that he could move forward more quickly.

Ideally, the CBI will give him suggestions that he can implement unilaterally (without approval from Parliament) to remove some of the strings that exist in government funding and expenditure, reducing the move to a market economy.

I have been extremely busy in my work the past few months, for which I am greatful.  However, it would be a lot easier for me if I could retire because the dinar rises in value.  Therefore, while I may not post often, I, for one, remain cautiously optimistic that the plan is moving forward, even though at a snail’s pace.

Unlike others I see that pressure is increasing to make a “leap” forward.  The passage of the Investment Law this week, hopefully, will be a big  step in the plan because it will open the door for protected investment and land ownership from foreigners.

If I read this correctly, we could begin to see a signicant increase in foreign investment in the near term.  I suspect that there are many companies who have been waiting impatiently for these security guarantees and that they are ready to move in on a moment’s notice.

The introduction of new money from the outside will go a long way toward solving the financial crisis in Iraq.  New money will release the pressure on the CBI to fund projects out of the reserves, thus protecting the value of the dinar.

New money will create jobs, which will reduce the need for the government to expend its precious resources to keep the economy afloat.

New money will also increase demand for goods and services in Iraq, both for building equipment for the projects the foreigners engage upon, but also through the payrolls of those who are employed by the new investors.

Increased demand will strengthen the dinar, probably in a matter of a few months.  Once the CBI sees stability they will move to the float because their ultimate goal is the removal of the three zero notes.  This cannot happen unless the dinar rises significantly in value.

The Investment Law passage is next.  Then we need some banking relief through a new Banking Law.  Third, we need to see the introduction of the large 50K notes.

This will enable the next step, reduction in the money supply.  This can occur coincidental with an influx of new money from abroad and will be seamless from the public’s point of view.

Reducing the Iraqi money supply (which, incidentally, will also occur due to the plan of the CBI to sell gold coins to the public, thus reducing the paper used to buy that gold) will lead to a rise in the value of the dinar.

Once this process begins, hopefully before the year ends, I foresee a rapid rise in the value of the dinar due to all of the factors named by me above, but most importantly due to the influx of new money from abroad.

Therefore, I am not in a funk.  I’m actually excited to see this plan laid out in detail for the first time.  It confirms what we’ve always believed, but puts it point by point, even adding a couple of elements that we were not heretofore aware of.

With respect to the political will that Mike mentioned, I disagree with him.  It seems to me that the article that we are chatting about here is filled with political will.  Nothing has changed in terms of the plan, as I see it.  What has changed is time and events.

The events turn out to be very significant in this case.

Had ISIS not exploded I personally think the float would have started some time ago.  But this is a significant rock in the gears for Iraq.  Add to that $40 oil prices and the situation is exacerbated to the point of a financial crisis for the country.

What amazes me, and stimulates me, is the tenacity of the CBI in the face of these obstacles (not to mention corruption, Maliki, Parliament’s inaction, etc.).

In the fact of all of this the CBI holds firm to its planned goals and even reaffirms them in this article.  Therefore, I am not pessimistic when I read this.

Just the opposite, in fact.  If the article had shown any change in the plan, or a statement of a major delay for any reason, then I might be pessimistic.  But instead the article lays out for us clearly that the plan is in place, IN SPITE of the obstacles, and is ready to move forward as events allow.

That’s my take on this.  So, in answer to Paxx’s question, YES, I definitely believe there is a chance.

Partial Article:

Monetary policies in Iraq and proposals for the next phase applications
Thursday, October 15 / October 2015 – 15:44   Samir Alnasiri

Iraqi Central Bank is responsible for monetary policy in Iraq and its applications and on the developmental role that must be played by Kmussh sovereign sober in the design and application of monetary policy during the period of 2004 the date of the law until the present time through all stages of completion

and the failure experienced by who tried through what has been accomplished that creates the kind of economic stability in spite of the lack of security and political stability and the difficulties and the objective and subjective conditions that accompany his work where there was a tangle of plans and policies.

But then it became a monetary policy features and trends, strategies and clear the basis of which a reduction of hyperinflation, which had a negative impact clear to all economic life milestones since the blockade imposed on Iraq in 1991 and as a result of what they suffered Iraq wars for many disorders has become inflation mounts high paces record until he reached the highest rates

It deteriorated all the productive sectors and has become a very big gap between the wages and salaries and high prices in the light of the many changes experienced by the Iraqi economy post-2003, and the issuance of the Iraqi Central Bank Law No. 56 of 2004,

under which the Board of the Central Bank of Iraq administration took issue regulations, instructions, and select the mechanisms and tools and applications monetary policy in Iraq in order to achieve the central objectives of basic ones hyperinflation lowering and raising the purchasing value of the Iraqi dinar and maintain a balanced rates compared with foreign currencies,

particularly the US dollar in addition to the formation of reserves of foreign currency and management as the body responsible for issuing currency and protect its value at home and abroad. Add to that the Central Bank of Iraq aims and according to the Bakannouna to the pursuit of stability in the exchange rate of the Iraqi dinar and promote the preservation of a stable financial system competitive and based on the market and the promotion of economic stability and sustainable growth and prosperity in Iraq …

The functions of the Central Bank of Iraq in achieving above objectives are as follows:

long article LINK: http://www.akhbaar.org/home/2015/10/199638.html