Resorting 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.
Valahtiattiyat International is assets are offset fully the commitments it so that cause shortages where no reduction in the liability side value equal lead to exposure system external payments and affected exchange market negatively and as a result increase the likelihood of the economy to crises notably inflation.
Mirza said for (long) The most important function of the reserves of the international financial As is known is used off to modify 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 basic function, there are calls to use reserves to exercise contradict it and differ 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 the use of 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 and 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 its 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 without charge of international reserves in the import directly from abroad for the purpose of (developmental).
said Mirza that assumption create a governmental body under the Ministry of Finance (or any governmental entity) have the duty to organize 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), including , 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.
and pointed out that the rest of the liabilities or obligations on the net foreign assets of the banking system, including (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 increased by comparing what has assets of foreign, and how can satisfy the request for conversion money local (from accounts Government or currency or deposits) size increases because of his foreign currency.
exchange rate and hinted that the answer is that it can not do so at the exchange rate prevailing and managed to do so should be re-equality between the two sides of assets and liabilities that are measured in dinars, so will have Central Bank to reduce the dinar exchange rate (against the dollar), even rising value of net foreign assets of the banking system in relation dinar to its pre-cut 20% of international reserves.
between that even par 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 percentage deduction without versus 40% for the required increase dollar from 1.170 dinars to 1.761 dinars, an increase of dollar rate of 51%.
explained 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 to this ratio 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 deduction required escalating dollar as the rate of deduction for re-value Net foreign assets compared dinar, the total banking system to what it was before staff.
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 be the increase in import prices 34% when the ratio of deduction 30% and the increase in import prices 51% when the ratio of deduction of 40%.
and 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 As a result, the high cost of imports and inflationary expectations, because executive interference by acting international reserves leads to low confidence about the level of reserves and financial and monetary institutions, 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 assess 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 will 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, but at home it can accommodate the parallel market currency to lead to reduced sequentially to the dinar exchange rate where anticipation of the truncated international reserves and then expect rate cut the official exchange rate of the dinar in the future, and all of these factors and related consequences will lead to rates of inflation at home is greater than the previous deductible effects of import prices.