Floating the dinar … a whirlwind threatening the collapse of the market and the segment of the poor
Many citizens have real concerns about the talk of some, including state officials, about the possibility of moving towards floating the local currency, which will be a further blow to the Iraqi dinar after raising the value of the dollar already in the financial budget for the current year.
Specialists believe that the state’s tendency to float the currency would raise the dollar’s prices again, which would lose confidence in the Iraqi dinar, followed by the price increase in the markets, which would negatively affect large segments of people, especially the poor segment, which exceeds 30 percent of the Iraqi population.
However, other experts believe that the financial reality prevents the currency from floating due to the nature of the rentier economy and the lack of diversification of funding sources, as well as the central bank playing an active role in supporting the Iraqi dinar.
Floating currency is completely liberalizing the exchange rate, so the government or the central bank does not interfere in determining it directly, but rather it is secreted automatically in the currency market through the supply and demand mechanism that allows setting the national currency exchange rate against foreign currencies.
Finance: The float may happen in the future
Finance Minister Ali Allawi considered in a press statement that “the current price of the Iraqi currency against the US dollar after its devaluation will continue for a long time, and a full float may occur in the future.”
He noted that “the central bank will now work to maintain the current exchange rate level for the longest possible period.”
The Central Bank sells dollars in the auction that it conducts daily to finance foreign trade, and these sales currently reach about 200 million dollars, more or less, depending on demand.
The International Monetary Fund said in a report that Iraq’s economy contracted by 11 percent in 2020, which reflects the slowdown in economic activities.
The fund predicted that Iraq’s GDP would return to its pre-pandemic level by 2024.
Iraq is the second largest producer of the Organization of the Petroleum Exporting Countries (OPEC), after Saudi Arabia, and oil revenues constitute about 96 percent of the country’s total public revenues.
Advisor: The float will lead to a market crash
The advisor to the Prime Minister, Mazhar Muhammad Saleh, confirms, in an interview with Shafaq News, that “it is not permissible to float the currency in Iraq because the market will collapse in this case, because the entry and exit of hard currency is not through the market, which is only an exit for it, but rather the government is the one that brings this hard currency. “
Saleh added, “If the government withdraws its hand, the supply will stop and the demand increases, and thus the market will collapse,” stressing that “the float is in economies in which supply and demand come from the market and that the state intervenes to buy and sell to achieve a price balance with its reserves.”
He pointed out that “a problem in Iraq is that the market is demanding and that the state is offering, and in the event that the Central Bank does not carry out the sale of dollars, it means that all the supply has stopped and there is no other offer, and if there is another offer, it is a little offer that is not sufficient to meet the demand and therefore the prices It will rise because the demand will be more than the supply. ”
The state is rentier
Economic expert Dergham Muhammad Ali said in an interview with Shafaq News that “we do not have free circulation of currency because there is no real circulation of capital due to the fact that the state is rentier and that the foreign currency in the market is its only source is oil sales and that the state’s main source of the dinar to finance the budget is the sale of dollars.” .
He continued, “The talk about floating the currency is unrealistic and that the Minister of Finance is not concerned with managing the monetary policy in the country because it is within the authority of the Central Bank, and that the real value of the Iraqi currency based on its cash cover can reach 1000 dinars to one dollar, so the issue of the float is raised. unrealistic”.
Ali pointed out that “floating the currency formally will make the currency in the hands of party brokers and their banks to manipulate its prices based on their interests.”
Iraq lacks a production base
A professor of political economy at the Iraqi University, Abdul Rahman Al-Mashhadani, said in an interview with Shafaq News that “Iraq is not eligible to float its national currency,” indicating that “if Iraq decides to float the dollar exchange rate at the present time, it will jump to 3000 dinars per dollar.”
Al-Mashhadani added that “the floating policy is not successful for Iraq because the countries whose currency floats have an industrial and agricultural base,” noting that “Iraq lacks such a production base.”D
The Central Bank of Iraq had decided to raise the price of selling the dollar to banks and exchange companies to 1460 dinars, from 1182 dinars to the dollar, with the aim of compensating for the decline in oil revenues caused by the deterioration of oil prices.