Rapid deterioration of the Iraqi dinar against the dollar, are there solutions?
Rapid deterioration of the Iraqi dinar against the dollar, are there solutions?
Researcher Shatha Khalil *
Mismanagement of the country’s economy and the absence of economic doctrine; The economic plans have destroyed the Iraqi economy and the most important reflection is the exchange rate of the Iraqi dinar and the issue of devaluation, which is to reduce the price of the Iraqi dinar against the US dollar and other currencies in a deliberate and deliberate manner, noting that this differs from the change in the exchange rate that is subject to the supply and demand process in the currency markets .
The Iraqi financial crisis does not seem to be on its way to receding, with the continued decline in oil prices in world markets, or their volatility, and the absence of economic alternatives, today the Prime Minister focused on restoring the economic situation in various parties, working with some economic advisers and with the Governor of the Central Bank of Iraq to prevent a decline and deterioration Akbar for the Iraqi dinar against the dollar, and this was not achieved at an exchange rate of 1500 dinars to the dollar, according to a study and analysis of the current situation, even for a few months, in the context of restoring the country’s financial and monetary situation.
As the Iraqi market recorded a noticeable decrease in the Iraqi dinar exchange rate against the dollar, which raised fears of a possible decision to float the currency, or the announcement of an official increase in exchange rates, in an attempt to reduce public budget expenditures, but deputies in the Finance Committee and economists warned Of serious repercussions on the Iraqi economy, in the event that a similar decision is taken.
Reliable sources said that one of the factors that led to the deterioration of the currency’s value is that there are 81 banks affiliated with political parties that take hard currency and trade in it for several purposes, including political issues of laundering corruption, as economists have confirmed that there are documents on other banks in cooperation with tourism companies from During the photocopy of the passport and withdrawing 5,000 dollars on the name of the passport holder, he did not know.
Iraqi politicians criticized the government’s inability to control the exchange rate, considering that banks and parties are the beneficiaries of that. The former deputy of the Kurdistan Democratic Party, Majid Shankali, said that “the most important reforms of the government and the new governor of the Central Bank, the rise in the price of the dollar in the markets,” and indicated that “The official price is 1190 dinars to the dollar, meaning that the only beneficiaries are the banks affiliated with influential parties and personalities. Is it reasonable that these banks earn 20-23 billion dinars daily?
There is no doubt that, since 2003, Iraq has become Iran’s fat economic window, as the country that suffers from stifling US sanctions on it, would not have been able to withstand the US embargo, had it not been for the outlet of Iraq and its loyalists. Some Iraqi politicians, those who have armed militias, and seize the most important positions in Iraq. They work for the benefit of providing currency to neighboring Iran at the expense of the country, and Iraq has tens, if not hundreds, of private and private banks, most of which are window to corruption and to supply Iran with millions of dollars.
The tasks of the central bank are: To make an exchange of the hard currency received by the government and convert it into dinars through the window of currency sale (currency auction) to cover the needs of the local market and to cover the payment of foreign remittances and appropriations allocated under the item of basic imports.
In the event of a surplus of hard currency, the surplus amounts are transferred to the reserve of the Central Bank, which causes the reserve to rise from the hard currency, and in the event that the external revenues are unable to meet the requirements of the government in terms of dinars (for the purpose of paying its expenditures in dinars, salaries, etc.), the hard currency reserve is withdrawn from the dollar. The Central Bank to compensate for the deficit from the dinar and assign government accounts.
The currency auction process and the currency sale window in the Central Bank are marred by a lot of corruption operations, and how not and all the joints of the state and institutions penetrated by the corrupt, part of which is borne by the policy followed in the Central Bank through the restrictions imposed for sale to be commensurate with a limited group of banks and companies requesting to buy currency, and another Other bodies such as the Ports Authority, Customs and Taxes Authority and the Ministry of Trade are responsible for issuing import licenses.
Although the political reform paper (the white paper) was one of its reforms and adopts (floating) the price of the dollar against the dinar.
Currency flotation What this process means: There are two types of currency flotation. The first, the special float and the second the directed float. The first is to leave determining the exchange rate of the national currency in the hands of the market. An increase in the demand for the dollar in the local market leads to an increase in the dollar exchange compared to the local currency, while a decrease in the demand for the dollar means a decrease in the dollar exchange rate in the local market.
The situation is very similar to the days of the global economic boycott (economic blockade) against Iraq after Iraq’s occupation of the State of Kuwait, where the exchange rate of the US dollar increased in relation to the Iraqi dinar in a way that was only preceded by the German mark during the Second World War. The exchange rate of the Iraqi dinar in relation to the US dollar has decreased from 2.8 dollars per Iraqi dinar to 5,000 Iraqi dinars per US dollar. Determining the currency exchange rate is the same as setting the price of tomato in Alwa Al Mudhaid, in Baghdad. An increase in the supply of it leads to a decrease in its price in the market, while a decrease in its supply in the market leads to an increase in its prices.
The second type is the same as the first type except that the central bank intervenes when the value of the local currency exchange decreases less than it is scheduled for or the local currency exchange rate rises higher than prescribed to her. Any local currency exchange rate measured in dollars, for example, must be according to minimum and upper limits, and the national currency may not exceed them.
According to some economic analysts, that raising the exchange rate, even for a temporary period, will protect Iraq from declaring its bankruptcy?
It can be said that the current currency auction is one of the aspects of the flotation, but it is restricted and assumes a fixed price or a price that follows the central bank (not the well-known law of supply and demand), and that almost everyone agrees on the need for reforms related to the work of this auction to provide cash liquidity from hard currency to be in Direct access to importers instead of being monopolized by a few and politically influential banks.
Today, the Central Bank sold nearly $ 240 million in hard currency, an increase of 25% over what was previously sold in the previous weeks ’sessions, which is supposed to provide support for the local market and import requests that are already low in activity due to the Corona epidemic and the causes Others relate to local fears of upcoming financial crises that threaten the income of employees and the middle and poor classes.
A set of proposed solutions:
Focusing on increasing sales of dollars in favor of exchange, instead of hawala companies tainted by corruption.
Investing the opportunity to stop a group of imports of agricultural and food products and limit the transfer of the dollar abroad by importing products that are easy to produce locally. That is, it is possible to adopt sweeteners that stimulate, encourage and support agriculture, to reach the stage of self-sufficiency.
Raise the price to 1500 and increase the currency auction in a short period to cover the increasing demand for hard currency through direct outlets for citizens and block the way for speculators and major speculators in hard currency, this plan will ensure that the exchange rate of the $ 100 denomination in the currency auction reaches 150 thousand dinars in the markets.
Forcing import requests through banks and appropriations to pay customs duties in hard currency directly to the Central Bank in favor of the accounts of the Customs Department. The real value of the import transfers will then be revealed and an estimate of the size of currency smuggling and laundering.
Finally, it must be emphasized that the current Iraqi government’s approach to reducing unnecessary public expenditures, such as: abolishing double salaries, resorting to regulated internal and external borrowing, and compulsory saving of high salaries, is one of the best realistic solutions to overcome the current crisis, provided that it be carried out concurrently with campaigns. Government is serious about combating the phenomenon of corruption, and controlling border crossings.
Economic Studies Unit, Rawabet
Center for Research and Strategic Studies