The concept of foreign currency auction in Iraq .. Who benefits from wasting the currency?
The concept of foreign currency auction in Iraq .. Who benefits from wasting the currency?
Researcher Shatha Khalil *
After the quarantine, the Central Bank of Iraq will resume the third day of May to re-sell the currency (the US dollar) at the cash sale price (1190) dinars per dollar.
The concept of currency auction, its origins, who benefits from it, and its impact on the Iraqi economy .. This is what this article will address.
After 2003, Iraq adopted a different economic system, as it shifted from the socialist economy to the open market economy, which was confirmed by the constitution and legalized by the civil ruler, “Paul Primer” in 2004, and is considered the only auction in the Middle East, as part of his efforts to raise the value of the Iraqi dinar, and operations were The sale is over $ 200 million at times, and this amount is usually from Iraqi oil revenue sold.
But it is difficult for any economy in the strongest countries to switch from the central system to all sectors and direct state supervision, to the decentralized system without controls and plans for the ministries concerned, where decentralization has produced chaos, state weakness and lack of loyalty to the Iraqi state, and mafias have emerged in all sectors of the state for theft and domination, and were incubator of a phenomenon Money laundering, given the economic freedom of the financial and banking sector.
To clarify the concept of the currency auction, we say that it is a market for foreign currency in which demand for this currency meets the supply from it and then the exchange rate is formed, and the Iraqi dinar exchange rate has been stable for a long time because of the use of the increasing volume of foreign currency in providing flexibility and reassurance in exchange for demand.
The process of determining the exchange rate must take place smoothly because its obstruction will affect the demand for the dollar and the demand that will be obstructed will be satiated from the market and this saturation will be at a higher exchange rate, and thus confusion occurs in the market and this is an introduction to the multiplicity of exchange rates, which hinders economic decision-making and implementation.
In order for banks to fulfill their mission from the demand side, they deposit accounts with them in the central bank that they use for monetary policy purposes in general, and foreign currency auctions in particular, and these accounts have been audited by the banks themselves, which include within their administrative formations a department for auditing money laundering.
Although the auction is used mostly by importers through their commercial banks, it must be emphasized that it is a monetary policy, because it withdraws the Iraqi dinar from the market, which reduces the pressure of liquidity and its impact on inflation.
Iraqi observers and officials estimate the value of what was sold of the dollar in this auction during the past fifteen years at more than 300 billion dollars, most of which went out of Iraq to other countries without achieving the benefit of the Iraqi dinar and its value, which is still under the logical limit of the fifth largest oil producer in the world ?
Thus, the currency auction became the official window for wasting foreign currency in the country and for corruption of various forms.
The process of buying foreign currency is a purely cash process and is conducted according to the instructions of the executive committee for buying and selling foreign currency or the auction committee, and this includes checking documents that require the transfer and whether the bank concerned has banking problems related to capital or commitment to the ratios of monetary policy decided by the bank.
Initially we must understand that the central bank should not be seen as a commercial institution, but rather as a monetary institution and its monetary work.
As we previously emphasized, the currency auction is a monetary policy, and the central bank law stresses that the bank must work to achieve stability in domestic prices, including the exchange rate, and if this goal requires to achieve it increase the money supply.
The central bank in turn gives the dollar because it receives a dinar in exchange for it (we are facing a monetary process) even though the dollar may be used commercially (after it comes out of the central bank) and the final import numbers are provided to the statistical agencies by the Ministry of Trade and customs departments.
Here, after the exit of the dollar from the central bank, the task of the Ministry of Commerce and other ministries concerned with following up the recovery process, which is within studied import plans for the development of the national sectors, and not with the aim of dumping the market with billions of billions of non-essential goods received only to serve the economy of Iran, Turkey, China and others, becomes the state losing billions. To call themselves “merchants” (gangs to destroy the economy of Iraq) Nabq, carrots and honey, and here we ask: Who is the ruler and who determines the imported materials?
It means that the main achievement of the Central Bank is to achieve stability in prices by withdrawing the dinar by selling the dollar, and this is the part of monetary policy, and the part of trade policy (outside the field of the central bank) is represented by the use of the dollar in import and commodity supply, which Inflation is largely neutralized, but if we leave the monetary side aside and imagine that private sector import operations are a purely commercial issue, and the financing of these imports comes from the foreign currency available to the government (for example, the Development Fund for Iraq) and not from the central bank reserves, the central bank remains a serum Its essential in reducing inflation, which could play an important trade policy role.
The basic principle under which the central bank operates is that it fully meets the demand, and we do not know whether government agencies operate at the same standard, and what is the effect on the exchange rate in this case.
In some cases, the currency market is not controlled, and there is a discrepancy between the official price and the market price, due to many factors from the side of supply and demand. Some crises may occur that generate an increase in the demand for the dollar as a safety and security commodity, and the bank can also be provided The central banks are in dollars, but it is not possible to deliver this dollar to the final beneficiary of the banks with the required flexibility. All these things impede the flow of foreign currency and obtain it, so the market price rises, and these phenomena hinder the flow of the market.
It is assumed that the central bank (which is a total institution) will give foreign currency details at the same level as commercial banks. The central bank in this case is like a wholesaler, it is the person who checks bank violations, and receives the quotation about the bank’s lack of money laundering.
The most important of all is that the central bank is the recipient of the dinar to give the dollar its allowance according to the declared exchange rate, if there are commercial lists with the request, then it is supposed to check at the level of the commercial bank because it provides a mechanism in the basis, and in any case, the commercial bank data A copy of it goes to the money laundering unit of the Central Bank for follow-up.
On the relationship of commercial banks with the Central Bank, Article 40 of the Central Bank Law provides for supervision of banks, which includes authorizing and supervising banks and issuing instructions regarding their work.
It is not the business of the central bank to follow the operations of banks at the level of individual lending operations, its relationship with banks is through the Banking and Credit Department that tracks the work of banks and their consistency with monetary policy requirements, and through the currency auction, where the bank receives the request for transfer and citation about the bank’s operations being free of Money laundering, and through the bank’s Money Laundering Reporting Service, which deals with follow-up and auditing of money laundering operations at the level of the individual process.
All operations that enter the currency market or auction and have played its role in determining the exchange rate, a copy of which goes directly to the bank’s money laundering reporting department, to do a greater audit of the suspected operations, and follow-up is done inside and outside Iraq and with counterpart units in different countries, that this department It is competent to follow up money laundering, especially the suspected operations.
The currency auction committees in the central bank are not concerned with money laundering issues even though they receive citations that the relevant bank is free of money laundering, and the person responsible for following up money laundering is the reporting department of the central bank, especially since they receive the auction data from the beginning.
Checking money laundering in banks is the duty of the money laundering departments in banks and the Directorate for reporting money laundering in the central bank. It is not the duty of auction committees that must pass requests to obtain foreign currency quickly and smoothly. The money market is very sensitive and any delay in the flow of information can affect Negatively on setting the exchange rate.
But as it is known, the great corruption of the influential and controlling bodies of some banks (whales of corruption) does not make the real purpose of the currency auction achieve stability of exchange rates and serves development, but serves this to finance their corruption and waste of currency and the destruction of the Iraqi economy.
The appropriate environment for development, and the most important elements of this environment is the stability of the exchange rate, but the benefit from this environment depends on the efficiency of the real economy, especially its ability to develop exports from the non-oil sector and formulate appropriate policies by the government and its organs.
If the real economy suffers from low productivity, the private sector will import almost everything, and the exchange rate of the dinar will decrease, but the size of the large reserve can finance the import and bridge the balance of payments gap and keep the dinar from falling, and this is what happens in the foreign currency auction.
It is better to maintain the dinar through production and the creation of non-oil export capabilities, and this is the duty of the productive sectors (government and private sector). The non-oil exportability must evolve, even gradually, until the dependence on oil revenues and the foreign currency dependency on oil depend on it.
However, the results came exactly the opposite. The currency auction in light of government weakness and the spread of corruption only results in the destruction of the Iraqi economy.
Depletion of the central bank reserves of hard currencies and gold bars, which in turn affects the exchange of the local currency, the growing phenomenon of money laundering, instability of the economic situation that directly affects the political situation, fluctuation in the exchange rate, and the unilateral Iraqi economy’s submission to fluctuations and speculations in the local market, the decline of the central bank reserves The gap between the official exchange rate and the market price widens, the unemployment rate rises, the deficit in the balance of payments and the decrease in productive capacity grows, the growth and spread of corruption and theft of public money, and the weak social ties, and economists, including Nabih Nadim Al-Ubaidi, stress on The necessity of stopping the currency auction that weakened and destroyed the Iraqi economy, and limiting the investment and smuggling of dollar auction sales from the Iraqi Central Bank to Iran to support its economy in the face of the US sanctions imposed on it.
Conclusion .. Economic corruption is a complex, thorny, multi-faceted and multi-faceted topic, it is linked to political authoritarian corruption, and its names have abounded. There is (financial corruption) that reflects the corruption of clear financial irregularities, the purpose of which is to obtain funds illegally, leading to waste in Public funds.
The problem that the Iraqi economy is suffering now is a problem of politics, not a resource problem. The country now suffers from a lack of political and security stability, which hinders development and decision-making, but we are now also beginning to suffer from the lack of economic stability as a result of exchange instability.
This affects the confidence in the dinar, which is beginning to diminish (we hope this will be temporary), which explains the great desire to acquire the dollar, which is now a public good for the public, and the instability of internal and regional conditions in turn encourages an increase in demand for the dollar.
Economic Studies Unit
Links Center for Research and Strategic Studies