Economist: resort to international financial reserves over the face of the economic crisis and inflation
Chief Economist Ali Mirza to resort to the use of financial reserves increases the likelihood face economic crises and inflation within the functions balancing the Iraqi banking system, because the mechanism for implementing the basic function set of international reserves, but carried out through the budget process going on between the assets and liabilities of the banking system, although prejudice This budget can lead to serious consequences.
International Valahtiattiyat is fully offset by asset obligations so that the events of deficiency without reducing the value equal obligations lead to the exposure of the payments system and foreign exchange market negatively affected and as a result increase the vulnerability of the economy to crises, most notably inflation.
Mirza said for (long) The most important function of the reserves of the international financial as it is known is used off to adjust the imbalance in the balance of payments in the event they occur, directly or indirectly through intervention in the foreign exchange market to influence the exchange rate, despite the clarity of this function basic, there are calls to use reserves to exercise contradict it and differs from practices prevailing in the rest of the world on how to deal with international reserves in the study of this issue, and see if there is a need to be amended central bank law, so lets get ratios and certain controls and use part of the reserve in the development, with invitations to use international reserves in foreign investment to get a return higher than what you get international reserves.
Image budget He added: If we examine the image of this budget achieved at the end of each year during the period 2007-2010, we find that balance or equality between both sides of the assets and liabilities / liabilities with similar (balance sheet – balance sheet), is one of the most important principles for dealing with the use of international reserves in the implementation of The primary function, and in the review of alternatives that involved invitations different what was raised on the use of international reserves at the Central Bank recently and consequences it entails, and assume that the central bank law was amended (in 2010) so that allowed the executive authority in the Ministry of Finance use or withholding a certain percentage free of charge from the international reserves to import directly from abroad for the purpose of (developmental).
He Mirza that assumption create a governmental body under the Ministry of Finance (or any governmental entity) have the duty to regulate the import of machinery and equipment investment financed from this ratio (intermittent) and distributed to stakeholders, and as the international reserves at the Central Bank of 57.2 trillion dinars (at the end of 2010), which means the use or deduct 11.4 trillion dinars (20% × 57.2) of them, and thus lower international reserves from 57.2 to 45.8 trillion dinars, after deduction, meaning that the net foreign assets of the banking system would be reduced from 68.1 trillion dinars to 56.7 trillion dinars.
He pointed out that the rest of the liabilities or obligations on the net foreign assets of the banking system, including the central bank, remained unchanged at 68.1 trillion dinars, an indicator of a clear imbalance, which raises questions about how the ability of the banking system to fulfill its obligations in the event if the liabilities or obligations increase by comparing what he has from foreign assets, and how it can satisfy local money transfer request (from the accounts of the government or of currency or deposits) size than what has foreign currency.
Exchange rate He hinted that the answer is that it can not do so at the exchange rate prevailing and able to do so should be re-equality between the two sides of assets and liabilities that are measured in dinars, so will have the central bank to reduce the dinar exchange rate (against the dollar), even rising value of net foreign assets of the device dinar bank compared to its level before deduction of 20% of international reserves.
And that even equal to the value of total net foreign assets of the banking system which calculates the dinar, before and after the deduction (at 68.1 trillion dinars), should reduce the exchange rate of the dinar against the dollar or dollar to rise from 1,170 dinars to 1,406 dinars.
Any to rise the price of the dollar against the dinar by 20%, but if increased international reserves deduction for 20 percent, the rate of increase in the dollar exchange rate against the dinar should be higher than the truncation, ie, for example, if the proportion of recoupment or use without versus 30% for the required increase in the dollar exchange rate of 1,170 dinars to 1,564 dinars. An average increase of 34%. Had rate without deduction for 40% of the required increase in the dollar exchange rate of 1,170 dinars to 1,761 dinars, any increase in the dollar exchange rate at a 51% rate.
The Mirza that equals the approximate percentage deduction rate and increase the price of the dollar at 20% deductible then skip rate increase the price of the dollar figure after that, due to the distribution of the net foreign assets of the central bank and commercial banks before staff and reduced the relative importance of what the central bank of these assets ( international reserves) after deduction, since the higher the percentage of deduction required escalating dollar faster than the rate of deduction to restore the value of net foreign assets compared to the dinar, the total banking system to what it was before staff.
He said that the high price of the dollar against the dinar will rise rate import prices resident dinar, and depending on the ratio of deduction, the increase in import prices will be about 20% when the ratio of deduction 20% and the increase in import prices 34% when the ratio of deduction 30% and the increase in import prices 51% when the ratio is 40% deduction.
He hinted that the rate of inflation internal surpass the rate of increase in the prices of imports behind concrete and which stems from factors related to the loss of customer confidence in the internal and external and consequently the high cost of imports and inflationary expectations, because executive interference by acting international reserves leads to low confidence about the level of the reserve and financial institutions and cash, as that level of reserves above the critical point given and the credibility, transparency and independence of monetary policy used at the present time from within the confidence indicators economy by dealers at home and abroad.
The same applies it to the position of several international institutions, including the specialized agencies assess credit him Assessment sovereign credit (sovereign credit rating), which is being continuously updated to most countries of the world, where the interference of the executive and the low level of reserves would lead to a reduction degree obtained by the state in the evaluation indicators, and will retreat confidence and reduce the score to increase import costs and external credit, the Inside the widening parallel markets for the currency to lead to reduced sequentially to the dinar exchange rate where anticipation of the truncated international reserves and then anticipated reduction in the official exchange rate of the dinar in the future, and all of these factors and implications related to lead to rates of inflation at home is greater than the effects pre-deductible import prices.