In Iraq, the most effective means to control the money supply is through the exchange rate control, because the money mainly arise from the conversion of the Central Bank of dollars of state oil exports to the local currency.
If the central bank raised the Iraqi dinar against the US dollar, it will add an additional dinars per dollar purchased from the government.
If the exchange rate has reduced the money supply growth rate will slow down.
Since the stability of the exchange rate is one of the main objectives of the Central Bank of Iraq, the use of the exchange rate for macroeconomic management was limited.
In addition, the price of oil has become the main engine to display the Iraqi currency.
When the price of oil rises, it will be the Ministry of Finance more dollars to be transferred to the Iraqi dinar with the central bank.
If the exchange rate stable and has not changed, the more Iraqi dinars must be provided for the purchase of which will lead to increased supply cash.
Conversely, a fall in oil prices would have the opposite effect.
