I found two paragraphs of particular interest in this article. Here is the first:
“And it contributes to «Central» also in the financing of imports and the commercial sector, while the sale process of the dollar means the withdrawal of the dinar from the local market, which will help the bank to curb money supply and reduce the resort to printing more currency.”
Enorrste: This is consistent with the CBI stated goal of reducing the money supply. As the money supply drops the value of the dinar will rise, over time.
The introduction of the 50000 dinar notes does not affect this process, Punisher, because the introduction is an “even exchange” in which two 25000 notes are replaced with one 50000 note. Thus the introduction itself has no effect on the money supply.
Enorrste: The next paragraph is this one, following the suggestion that they could devalue the dinar to increase income to the government:
“He said that the reduction option easy, but it does not help in the reform of the structural problems, and the local currency is good for exporting countries cut to stimulate exports. He added that «Iraq importing country, and to reduce the currency hurt the purchasing power of citizens with limited income.”
Enorrste: Here we see that the CBI is specifically rejecting the suggestion to devalue the currency, even though it may appear on the surface to be an “easy fix” in terms of bringing more money to the GOI. The fact that the suggestion is rejected is very positive for our investment.
Enorrste: It shows that the CBI is not about to go one step backward prior to moving forward. It also confirms, again, that the CBI longer term strategy is to reduce the total money supply and raise the value of the dinar.
Enorrste: Unfortunately, as Mike has pointed out many times, the lack of political will seems to turn this into a snail’s pace operation. We can only wait. I am heartened that the goal is still in place, though, and I personally believe that we will see movement either by the end of this year or early next year.
More Comments Added From Another Article:
Enorrste: So now we have the finance committee in Parliament (at least Jabouri), the Council of Ministers, the IMF, and the CBI all on the same page. There is no more serious talk of not moving to the float. Instead, the talk is essentially one over timing.
Enorrste: Saleh is insistent, and correct, that the final decision with regard to timing is in the hands of the CBI. They are on records with several recent articles now stating that they wish to reduce the money supply in Iraq. This can only be done with the raise in the value of the dinar.
Enorrste: Those few who are pushing for the float so that the value of the dinar will go down are, to put it nicely, ignorant as to how the process works. As long as the CBI is in charge the value will not be allowed to fall, period. We got that from another article thread today, for instance.
Enorrste: Therefore, I am still cautiously optimistic that the float will commence before the end of the year or early in 2016.
Iraq: a seminar on the central bank auction and determine the foreign exchange rate
2015/11/06 | 12:22
(Encyclopedia of the day for News | Iraq News) – Governor of the Central Bank of Iraq Ali Mohsen Keywords announced that the nature of the Iraqi economy Reclining on oil resources, make the relationship between fiscal and monetary policy, including an interactive relationship necessitated by the nature of the revenue and expenditure of the pricing of the dollar.
He pointed out that «Central» exercised important roles in this process, including the financing of the current expenditure of the public budget, with the dollar buying from the Ministry of Finance to cover the needs of the Iraqi dinar, in accordance with the allocations required in the general budget.
And it contributes to «Central» also in the financing of imports and the commercial sector, while the sale process of the dollar means the withdrawal of the dinar from the local market, which will help the bank to curb money supply and reduce the resort to printing more currency.
He said at a seminar in «Institute of the progress of development policies», attended by experts and interested in the money sector of the economy, that «such activity is not essential for central banks in the world, it is very rare to have the central sales window, but because of the nature of the Iraqi economy, Central took over this task ,. While the task required to intervene when there is an imbalance in the exchange rate, as in the European Union »
He pointed to the issue of monetary reserves, which are still under discussion, and stressed that the reserve is the difference between what the central buys and sells.
And over, it goes to the international reserves, and that the function of the reserve financing imports and other transfers and coverage, and the foreign currency reserve is the difference between the dollar sales of the Ministry of Finance to the Central Bank and the central bank sales to the private sector.
And he confirmed the existence of the reserve adequacy criteria, such as coverage of imports for a period of 6 months and cover the local currency and foreign debt.
Keywords He pointed to the presence of important rules govern the process of selling the dollar to cover imports of personal and transfers of the private sector, including the Central Bank Law Article 28 and guidance of the International Monetary Fund economic system according to the constitution, and the law against money laundering.
He pointed out the real solutions such as the purchase or sale simple unconditional, cash and futures, and to require banks to apply the principle «know your customer» and the application of anti-money laundering and terrorism financing law.
He pointed to the devaluation of the Iraqi dinar options by raising the dollar exchange rate of 10 percent to 1300 dinars to the dollar, providing the general budget of 5 trillion dinars ($ 4.2 billion), or raise the dollar exchange rate of 20 percent to 1400 dinars, providing budget 9 trillion dinars.
He said that the reduction option easy, but it does not help in the reform of the structural problems, and the local currency is good for exporting countries cut to stimulate exports.
He added that «Iraq importing country, and to reduce the currency hurt the purchasing power of citizens with limited income.
The «taxes can play an important role in the finance, justice and balance without compromising the low-income segments, as can achieve economic goals, social and financial.»
The head of the «Institute of the progress of development policies» former Planning Minister Mehdi al-Hafez, pointed out that the national need not require the continuation of the so-called dollar auction, organized by the «Central», but must be handled freely and without restrictions.
And it calls for counter-opinion to uphold the auctions and to provide the necessary facilities for the conduct of this operation, and we must stop at the experiences of neighboring countries and operations.
He asked Hafiz for the exchange rate, which raises several problematic, he said, «How can that half of the process required to determine the exchange rate, and is related to the economic and financial situation of the state»?
Turning economist Ahmed Alobreha points relating to the expected path of the Iraqi economy, pointing to the difficulty of reduced private sector demand for foreign currency in the current scope of the exchange rate and income levels.
He added that the lack of the national economy to a diversified productive base that can supplement the national market alternatives to imports of goods and services, adds restrictions and weakens the effectiveness of efforts to address the problem of policies.
He pointed out that «the private sector was unable to contribute to the display of foreign currency, as well as the non-oil government sector, and the policy of foreign investment did not succeed in adding a tributary albeit in a limited form.
Iraq has faced interest on the loans in the international market can not afford the prices, and as a result of crude oil remains the only source of foreign currency, and must be serious and responsible move towards real economic development to pay a danger for Iraq ».