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Walkingstick: The Iraqi dinar exchange rate options
Author: intelligent loyal Khalidi
01-12-2015 03:55 PM
In light of the suffocating financial distress taking place in the Iraqi economy because of the large decline in oil prices, and experts concerned to discuss the most appropriate option to determine the dinar exchange rate. The Iraqi parliament discussed before the possibility of lowering the dinar-dollar exchange rate by 10 percent to 1300 dinars to provide the general budget of 5 trillion dinars ($ 4.2 billion), or down 20 percent to 1400 dinars to provide nine trillion dinars.
There is no doubt that reducing the rate of the dinar was any additional resources will provide the public budget because it will increase the amount of the Iraqi dinar, which you get by the Ministry of money in exchange for the replacement of its revenue from oil or foreign loans in dollars with the Central Bank. But artificial way to increase government resources at the expense of citizens. Valmtdharr is normal especially those with limited income citizens will drop as the purchasing power of their incomes, especially prices of imported goods, as creditors will be affected in the local currency, including the Iraqi government bondholders at home.
Almost adoption of Iraq entirely on oil revenues and the weakness of other resources as commodities and services, excluding oil, or the existence of financial investments abroad or large foreign reserves, and the high cost of external borrowing, are all indicators to a lack of available to address the problem of the current lack of government resources from foreign exchange options. This makes cut spending on the one hand and try to increase some direct taxes and fees types and the issuance of treasury bonds in the local market solutions are inevitable.
Anyone who has followed the march of the Iraqi dinar exchange rate when it was equal to $ 3.3 for before the start of the Iraq war – Iran until it reached 3000 dinars to the dollar, during the recent years of economic blockade, ie, from 1990 to 2003, he realizes that the problem simply lies in the difference between the width dollar demand the one hand, and between the supply and demand for the dinar on the other hand. It is a simple equation of price control not only the currency, but all kinds of goods and services. So if it is difficult to state control to one end of the equation have to control the second party to ensure that the incomes of the exchange rate in chaos.
When it was Iraq’s resources from limited oil by the First Amendment of oil prices in 1973, he hired the law of the currency, which is a remnant of the gold standard, and is supposed to cover 70 percent of exporting gold and foreign currencies, currency, to control the amount of display dinar through government spending.
Because of the Iraqi – Iranian war abolished the currency law and disturbed the balance between the supply and demand of foreign exchange as a result of the increased military and civilian government spending.
The government allowed the private sector to import goods from its resources and sell prices are not subject to its control. Thus, there are two prices has become the exchange: official he keeps to $ 3.3 and is used for official expenses, and parallel is determined by the relationship between the foreign currency supply and demand. And the expansion of much difference between the two prices after the imposition of the economic embargo on Iraq in 1990 rose parallel to 3,000 dinars sometimes.
After the occupation and again allowing the export of Iraqi oil and the liberalization of deposits frozen, it was expected that the reform of Iraq hereby withdraw cash surplus banknotes from circulation. But he used the daily currency auction which specific amounts of dollar sold to the banks and the private sector to meet domestic demand for foreign currency, especially for the purposes of importation. And it resulted in the continued increase in oil revenues to a gradual improvement in the exchange rate even reached 1220 dinars to the dollar.
Many politicians and technicians and that is the daily currency auction way to smuggle the dollar by private banks under the pretext of import. And increased their criticism in the light of the current financial crisis. The question addressed by concerned now in Iraq is: Do I have to continue in the daily currency auction, despite accusations to the auction? Or it should halt its work and resort to other means if it becomes free and purchased the process of selling the dollar without restrictions as some suggest?
The choice of the appropriate exchange for any state-minute process of price and related economic and financial situation of the State Economic and its ideology. The state that choose full flotation of its currency and make it sell the currency and buy Harin and without restrictions are usually powerful developed economies that have sources of important and multiple foreign currency and be their currencies of importance in international trade and investment flows and have large reserves of an international weight currencies.
The countries that demonstrate their currencies in a foreign currency and one as dollar or a basket of currencies, Felthafez at this price in front of her two options: first, to have large reserves of foreign currency and gold to enable them to intervene to support the currency price installer when necessary, eg the Gulf Cooperation Council (GCC). And second, to maintain the exchange rate through the management of this price by the monetary authority that affect the factors that determine the demand for foreign currency. This is what Iraq was doing before the first oil boom.
As in Iraq, the government does not have an official rate of the dinar against the dollar or a basket of currencies. The old and the price is no longer $ 3.3 Mstamla any type of trading, even though he has not been formally repealed. Accordingly, and in light of the limited resources currently of foreign currency and the difficulty expanding beyond oil resources, it is imperative that manages the State the current exchange rate through the development of the central bank balance of foreign exchange determines the share of each paragraph of imports of goods and services and transfers without charge and others. And thus can maintain the stability of the current price on the one hand, and restricting expenditure in foreign currency limits of available resources on the other hand, to become favorable conditions for monetary reform and the adoption of an appropriate official exchange rate.
The article expresses the opinion of the author and do not necessarily reflect the viewpoint of Iraq today