The reasons for the high exchange rates of the US dollar in Baghdad and Kurdistan

The reasons for the high exchange rates of the US dollar in Baghdad and Kurdistan

10-31-2020

The reasons for the high exchange rates of the US dollar in Baghdad and KurdistanResearcher Shatha Khalil *

The Iraqi economy is exposed to a crisis in financial and monetary policy, which in turn affects all areas of the country’s economic and social life, and since Iraq operates within a fixed exchange rate system, which is very exaggerated, and it is supportive of the external product rather than the domestic, this led to a rise in exchange rates. The dollar against the Iraqi dinar.
A few days ago, the dollar exchange rate recorded a rise in the markets of Baghdad and the Kurdistan region, as the central Al-Kifah and Al-Harithiya Stock Exchanges in Baghdad recorded (125200) Iraqi dinars for (100) US dollars.
It also increased in the exchange shops in the local markets in Baghdad, where the selling price reached (125,500) Iraqi dinars for the (100) dollars, while the purchase prices reached (124,500) dinars per (100) dollars.
As for Erbil, the capital of the Kurdistan region, dollar prices have witnessed a remarkable rise, as the selling price reached (125400) dinars per (100) dollars, and the purchase was at (125,000) dinars per (100) US dollars.
Economists analyzed this rise due to the overlap of a set of expectations for the financial crisis that Iraq is going through, caused by the drop in oil prices, and accompanied by the impact of the Corona virus and the curfew, which resulted in the suspension of currency outlets in the Central Bank, and the cessation of commercial activities at the local level, which was reflected on The high exchange rate of the dollar and the depreciation of the Iraqi currency, in addition to speculation by currency dealers, accompanied by multiple rumors in the Central Bank’s endeavor to classify banks and exchange offices.
The appearance of Muhammad Salih, the financial advisor to the Prime Minister, explains the reasons for the high exchange rate of the dollar in the past few years that “the money market in Iraq is sensitive and affected by economic and political information and news, which was reflected in the demand and supply process for the dollar.”
We are a cash payments community that does not deal in sukuk or bank transfers, and therefore this (monetary) policy affected the supply and demand of the dollar, stressing that “the lack of revenues from foreign currency due to the decrease in oil prices in global markets was matched by an increase in the purchase of the dollar, and this is what caused The high exchange rate of the dollar in the markets.
Saleh indicated that “90% of the foreign currency window in the Central Bank is foreign remittances to finance foreign trade to the private sector, and 10% of it is for the cash dollar that the bank sells to banking companies, banks, and areas of market feeding.”
The government advisor estimates, “The treasury of foreign currency that people have (not deposited in banks or banks) ranges between (7 to 10) billion dollars, and therefore these large numbers are affected by rumors, news and information, which may also cause an increase in the exchange rate.” .
Experts also said that the central bank was not able to stop the rise in exchange rates, because the auction of selling the currency has stopped, and there is no real interventionist management at the exchange rate from the central bank, as it used to do in the past, “and there is no real economic activity except in the food market. Only, and we find that the demand for the dollar increases and the exchange rate rises with it.
The future expectations and reassurances of withdrawing experts were not at the required level regarding the payment of salaries and the recent printing of currency, which led many to seek to convert what he has from a dinar into a dollar.
The experts added that the use of inflationary financing or the new monetary issuance, as the government borrowed treasury bonds from the central bank, the latter did not use the existing hard currency reserves, but rather used the new cash issue.
This procedure from the Central Bank raised the monetary mass in Iraq from 56 trillion dinars to approximately 80 or less trillion dinars, and this increase leads to monetary inflation and continuing with it leads to an increase in the exchange rate of the dollar towards the Iraqi dinar, and this is common in monetary policy, as The new monetary issuance leads to the exchange rate of the dollar, given that the government did not use real resources to finance the deficit, but rather used inflationary resources.

In conclusion, there is reassurance in terms of oil prices and improvement in public finances due to the high percentage of revenues, the intervention of the Central Bank, and the injection of a foreign currency into the market. All these factors, if all of these factors are properly combined, and not one of them, will stabilize the exchange rate of the dinar against the dollar, and the government must implement comprehensive plans to save The situation and overcoming its crisis, and the most important of which is the adoption of a plan to develop the agricultural and industrial sectors and revive other sectors, fight corruption and reduce operational expenses, by canceling all salary allocations, which are estimated at more than (15) trillion dinars out of (28) trillion dinars, total salaries of employees in the state Iraqi ”.
And do not forget the government’s actions in the year 2019 that led to an increase in the size of salaries, so that they rose from 40 trillion dinars to more than 50 trillion dinars. “They must be reconsidered, and it is very important to reduce allocations and large salaries that will save very large funds amounting to more than (15) One trillion dinars ”, which will ease the burden on the Iraqi citizen from the price inflation crisis, and the most important thing is to increase non-oil financial resources such as ports and direct and indirect taxes, activate the public, private and mixed sectors, activate industry and agriculture, and in a way that leads to the employment of manpower, and thus revitalize the economy for the sake of Finding effective solutions to the financial crisis.

Economic Studies Unit, Rawabet
Center for Research and Strategic Studies

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