Doc.K: Note Last Years Date and the $1.20
Some Iraqi economists are demanding that the government raise the Iraqi dinar exchange rate against the dollar so that its purchasing power rises and confidence grows as it represents the sovereignty of Iraq. They also demand the need to stop the dollarization of the economy by preventing internal transactions and making transactions.
The price of the Iraqi dinar is raised again
Zca_makhls_alkhalda | Since 19 February 2017 / 17:26
Some Iraqi economists are calling on the government to raise the Iraqi dinar exchange rate against the dollar so that its purchasing power rises and confidence grows as it represents the sovereignty of Iraq. They also demand the necessity of stopping the dollarization of the economy by preventing internal transactions and making local transactions limited to the use of the Iraqi dinar only.
It should be noted that 70 percent of the currency in circulation was covered with gold and foreign currencies until 1981, and the remaining Iraqi government bonds (currency law). Iraq was then applying the system of remnants of the gold base.
To maintain the lid, successive governments have been linking their fiscal policy, especially current and investment spending, to the balance of payments situation, the latter being determined by government revenues from oil exports. For the success of this linkage, administrative restrictions have been applied to the external transfer of goods, services and capital movement. And thus followed the conservative monetary and financial policies kept the stability of the Iraqi dinar fixed by the Central Bank at $ 3.2 per dinar.
The commitment to the dinar cap gave ease to the monetary authority in the exercise of its tasks, as it was the sole concern to maintain the stability of the currency, but this is achieved at the expense of economic development, which was not spending enough for fear that the increase in spending will affect the stability of the currency.
But during the Iraq-Iran war, which eroded Iraq’s huge foreign currency reserves, the Iraqi government abandoned the currency law and began spending on the war without quantitative restrictions, causing a steady decline in the dinar’s exchange rate against the dollar and other major foreign currencies. View and demand the Iraqi currency.
The economic embargo imposed on Iraq in 1991 has worsened.Despite the government’s adherence to the official exchange rate ($ 3.2) for official transactions, the continued increase in the imbalance between the volume of the currency in circulation and the demand for another price of the dinar is the parallel market price or the black market, sometimes reached 4000 dinars to the dollar.
After the occupation of Iraq in 2003 and lift the embargo on oil exports and reserves of foreign currency deposits abroad and the resort of the Central Bank to organize auctions daily to sell the dollar, which means withdrawing part of the local currency, the value of the Iraqi dinar began to rise gradually until it reached 1200 dinars to the dollar, Ranging around this rate. The circumstances of the Iraq-Iran war and the subsequent economic siege have deprived the Iraqi dinar of being considered a store of value and a means of trading. This has caused the transformation of most of the domestic transactions, especially domestic goods and services, to the dollar.
From this background on how the Iraqi dinar has changed over the past 36 years and how the dollar has been “wiped out”, it is time to discuss what some economists are now proposing to raise the dinar rate and stop dollarization.
For more than four years, officials in Iraq are talking about a project for monetary reform through which the exchange rate of the Iraqi currency against the dollar so that the new dinar is equal to 1.2 dinars to the dollar instead of 1200.
But the move was postponed to a later time because of the exit of some areas of Iraq from the control of the government After the occupation of «urging» them. Military operations began to recover these areas, which still exist. The Government is expected to return to the same project after the end of military operations.
If monetary reform is successful, there is no longer a need to use the dollar in local transactions. The latter occurred after the completion of daily transactions difficult with the arrival of the value of one dollar to thousands of dinars, which made individuals resort to deal in dollars instead of dinar, especially in large transactions and the hoarding of the currency.
But monetary reform in the above manner does not mean setting a new official exchange rate for the dinar against the dollar. If the exchange rate remains as it is currently, it may rise or fall according to the relationship between the dinar and the demand for it, the higher the dinar’s offer against stability or lower demand, the exchange rate decreases against the dollar.The opposite is true if the dinar is devalued against stability or high demand.
The monetary authority may resort to fixing the new exchange rate in dollars or a basket of currencies. But in any case it is not advisable to adopt a high exchange rate, it does not give consideration to the economy or raise the value of national sovereignty as some believe, but it has negative effects in the economy.
The exchange rate of the former Iraqi dinar ($ 3.2) was overstated and will remain exaggerated if it is returned in the future. It will make imports cheaper but hinder the improvement of Iraq’s production and export capacities, 2 dinars to the dollar or dinars against the dollar is the right price. But the government must follow fiscal and monetary policies that help preserve it.
Thus, we can say that the calls we hear today to raise the dinar exchange rate and cancel the “dollar” of the economy are unjustified claims for the first or can not be achieved before the monetary reform for the second