Monetary policy and its consequences on the Iraqi dinar
Monetary policy and its consequences on the Iraqi dinar
01/23/2013 (23:00 pm)
D. Accustomed Naji al-Hamdani
Seen monetary and fiscal policy since 2003 a major shift in the banking sector has taken the Iraqi government some necessary measures derecognition foreign exchange controls and the lifting of restrictions on the movement of trade, capital and support and encourage private companies in the banking sector to move from a system exchange controls system to the open market as one requirements of a market economy. And the Central Bank of Iraq as Iraqi state bank, which formulates monetary policy, he dealt with this policy. Under this approach open to the capitalist West, monetary policy assumes Iraqi currency float and be subject to the law of demand and supply and non-interference in determining the exchange value of the Iraqi dinar against foreign currencies, including the dollar. Currencies cash exposure in the markets as exposure to any items of other commodities which practically leads to monetary instability. Demand and supply that determines the value of the currency. Accordingly, it is expected that the Iraqi currency is exposed to more pressure because of the inflamed political crisis and instability that leads to security stagger markets and rising prices of goods and services and go about asking for more than the dollar.
Despite the huge accumulation of cash balances of the Central Bank of Iraq, which constitutes a solid cover of the Iraqi currency, the dinar is under severe pressure. Dropped its monetary value in recent from 1170 to 1320 dinars to the dollar did not quite live up to the level of competitiveness currencies. The relative stability of record of the dinar exchange rate in some years it has been at the expense of draining small amounts of foreign reserves and no thanks to the efficiency of monetary policy and right that turned the central bank into a mere ATM.
As confirmed by the Iraqi Central Bank, the monetary reserves had reached in 2012 about 70 billion dollars and 31.5 tons of gold, according to these huge funds are supposed to enjoy the Iraqi dinar a significant competitive capabilities in the foreign exchange market and cash worth more than the value of the dollar. The question here is why descend the value of the dinar to a further deterioration with this huge amount of reserves?
The shift towards a market economy and opening up to the capitalist West imposed on the central bank keep up with this transformation and independent monetary policy for governmental guidance and shift towards monetary instruments indirect order to achieve monetary stability and tackle inflation and stimulate economic growth and other targets that aim to achieve.
It is clear Allko in the work of the central bank in achieving these goals being implemented monetary policies governed directives and policies of international financial institutions, which hamstrung the ability to take measures to stop the leakage cash abroad, estimated at more than $ 260 million per day according to the bulletins daily announced by the central bank. And must realize that hundreds of millions of dollars that leaks out is part of the oil imports, which should invest in the development of the national economy and enhance the value of our national currency and conservation of deterioration and collapse.
The central bank is required to intervene to maintain cash reserves and stop the deterioration suffered by the Iraqi dinar and determine the value of reciprocity versus Nzirath of foreign currency, commensurate with the huge assets that you have to believe the Iraqi currency stability and confidence as the key currency in the financial trades.
Despite assurances by senior officials of the Central Bank of Iraq for the durability of the Iraqi dinar because protect a discreet cover of hard currencies is that the market indices refute these allegations and confirms that the value of the dollar rises and the value of the dinar in the deterioration.
That monetary policy followed the central bank aims to achieve economic stability through access to a fixed exchange rate and stable dinars through the accumulation of cash reserves of hard currency and thereby turn the dinar to offset the dollar and that this trend did not achieve economic stability desired in a country like Iraq, which suffers from structural imbalances in the productive sectors and unemployment rife. The stability of the exchange rate of the national currency is linked to many factors, including the strength of productive activity in the commodity sectors agricultural, industrial and service sectors of electricity, water, housing and sanitation, education and health that generate cash incomes commensurate with their output, leading to a balance.
Fluctuations in the exchange rate of the dinar, which represents the external value of money and the lack of firmness in the local market in recent led to negative consequences was the rising prices of goods and services and weaken confidence in the Iraqi currency and erosion entering the poor as a result of rising prices and the dollarization of the economy. Also led to increased demand for foreign currencies it boosted the status of the dollar in the Iraqi market. Has led commodity shortages in supply-related import external and its inability to meet the total demand of the Iraqi market to increase inflation. And thus became imported inflation and inflation related to high cost and the deterioration of gross domestic product.
That the central bank demands to strengthen the value of the Iraqi currency and not to provide justifications for the deterioration that has plagued the value of the currency. Monetary policy Vartbat and Iraq’s financial institutions international capital funding raises the question about the feasibility of this policy and its ability to enhance the value of the national currency and achieve monetary stability. It is the consequences of opening up to the capitalist system to move all diseases of the capitalist system and the financial and monetary crises to the Iraqi economy and the plight of Iraqi parents are exempt from the consequences of the monetary and financial crisis plaguing the international capitalist system.
That the central bank can resort to the use of his tools available cash as a price discount, reserves and other tools available to stop cracking in the national currency and its repercussions on the living conditions of the poor and downtrodden and those with limited income by controlling the money supply and take quick steps to enhance the value of our national currency and the tightening measures pumping foreign currency and sold in accordance with the legal requirements necessitate coupling to obtain foreign currency for the importation of goods and basic products contribute to support economic activity as a means of production and raw materials are not available in the Iraqi market and within the activity of industrial and agricultural production.
Hundreds of millions of dollars flowing formally abroad not only imports offset poor and depressed commodity markets in neighboring countries as a means to cover up the smuggling of large amounts of hard currency that goes into the pockets of mafias and thieves market profiteers people. An activity and mastermind of the scheme by some regional and international powers to weaken the Iraqi currency and the destruction of the national economy and sustain existing crises.
However the sharp rise in the current political crisis is expected to witness the Iraqi dinar more volatility in the exchange rate against the dollar and will be reflected in the rise of consumer prices and core rents, shops and business service daily and will lead to the deterioration of the purchasing power of entering poor that suffer mainly of the many pressures of life.
That the government is required to pursue sound financial policy able to create internal and external balance to support monetary policy. The economy of Iraq is still economical ريعيا constitute its oil imports 98% of its national income, and the economy strong is not measured by the extent of state ownership of billions of cash balances, but that the strength of the economy and ensure its stability and the stability of market prices determined by the strength and vitality of its sectors productivity industrial, agricultural and ability to self-sufficiency .
That the management of foreign reserves efficiently requires a sophisticated banking system and is capable of mobilizing and allocating financial resources efficiently to serve the purposes of productivity and development and to respond to financial crises and potential cash. Monetary policy in Iraq is facing major challenges as inflation and fluctuating prices and the lack of coordination between monetary and fiscal policy and the phenomenon of dollarization in the economy.
The rehabilitation of factories and plants Iraqi and re-operation and the establishment of industrial parks and huge agricultural and provide the investment climate welcome attraction for the local private sector and foreign and monetary policy and financial independent of outside interference will lead to the creation of economic cycle contribute to increased demand for the Iraqi currency and the rise of the Iraqi dinar against foreign currencies. The stability of the value of the currency and competitiveness one of the key indicators on the effectiveness of monetary policy and right.