Change the Iraqi currency and the expected effects

Change the Iraqi currency and the expected effects
Monday, February 27, 2012
Intelligent loyal Khalidi *

A source at the Central Bank of Iraq weeks before the government’s intention to change the currency by deleting three zeros from the right side of the categories of the current currency, any division of denominations present on A, and thus become a category one thousand dinars, the current, for example, equal to the new dinars and the five thousand is equal to 50 new dinars and a thousand percent, equal to a hundred new dinars.

And will be the new currency in 2013 and the establishment of the new currency will take place of the current two-year void at the end of the old currency, but banks will continue to receive for 10 years after the switch for the purposes and not for circulation.

The source added that the purchasing power of the new currency will remain equal to the value of the current purchasing power of currency. Valslah worth a thousand dinars, which now becomes the new dinars worth of currency, which the current value of becoming a million dinars worth a thousand dinars, and so on.

Because of the importance of the topic and some people have a misunderstanding as there are those who believe that it is possible to make profits from the current Iraqi dinar buy and sell in the post, you should ask two questions – first: What is the government’s goal of this change?The second: How will the government, especially the monetary authority, to ensure the relationship between the two currencies offsetting existing and new so as not to cause harm to any of the switch?

It can be said in answer to the first question that the Iraqi dinar was until 1981 partly covered with gold and foreign currencies (70 percent), and partly because the Iraqi treasury permissions Iraq was applied to the vestiges of the gold standard. In order to maintain the cover, successive governments have continued to link fiscal policy, especially current expenditure and investment expenditure in the case of balance of payments, an increase of the revenues from Iraqi foreign assets, especially oil export revenues, reserves of gold.

The success of this linkage applied administrative restrictions on foreign exchange, both, trade in goods and services, and capital movement, and applied monetary and fiscal policies of the province. Iraqi dinar remained a result, maintaining a stable exchange rate and the official of $ 3.2 of the dinar. The Iraqi dinar has as large a store of value inside Iraq and in foreign markets, especially markets of neighboring countries. But after the disappearance of Iraq’s vast reserves of foreign currency after the outbreak of the Iraq war – Iran and the impact of the high costs of the war, the government left the labor law of the currency and started to spend without quantitative restrictions, which led to a continuing decline in the Iraqi dinar exchange rate in the value of purchasing power.

And increased economic blockade imposed on Iraq in 1990 it worse. Despite the government’s adherence to the Iraqi official exchange rate of $ 3.2 of the dinar in official dealings, highlighted the developments of the last price is the price of dinars on the black market, which is determined by the forces of supply and demand, and reached the price of three thousand dinars to the dollar. After the occupation of Iraq and the lifting of the ban on exports of oil reserves of the country and abroad, and turning to the Iraqi Central Bank to regulate the daily auctions for the sale of currency for the banks, the value of Iraqi dinar than three thousand dinars to the dollar to about 1125 dinars now.

Deprived the Iraq war – the economic blockade of Iran and the Iraqi dinar after a lot of consideration as a store of value and medium of the circulation, causing the transformation of most of the transactions to the dollar. And thus the dollarization of the economy got in Iraq. It will be the first impact of the decision to change the currency to the rehabilitation of the dinar and make way for all denominations, including small to find its way back to trading as well as to end the dollarization of the economy and return to the Iraqi dinar to deal only.

As for your second question, and most importantly, Vldman offsetting the relationship between the two currencies existing and new, you need the monetary authority to issue instructions provided on the following:

Divided the Iraqi government expenses, including salaries of staff at A as well. The civil servant who receives currently 1.5 million dinars become a new salary of 1500 dinars, divided the prices of goods and services on A as well, becomes a commodity that is worth a thousand dinars and the dinars, equal to the censoring effect.

And divide the existing debt on individuals and the government, companies and the banking sector A as well, the person that his trust to the bank becomes a current million dinars his trust again. And take all the courts and judicial authorities in this division, upon receipt of specific complaints. But if the dollar of the debt shall continue to fulfill it to the dollar. As well as bank deposits are divided over a thousand.

But the monetary authority will continue to face more difficult task is to determine the exchange rate of the Iraqi dinar. Will resort to install it to the dollar or a basket of currencies or managed float method of tracking any leave, as is currently the case, is determined by the forces of supply and demand within the margin of acceptable power to intervene to maintain. The most appropriate option for the conditions in Iraq as a developing country is to stabilize the exchange rate, both against the dollar or to a basket of currencies, and choosing the appropriate exchange rate because the official exchange rate of the previous $ 3.2 of the dinar was originally overstated and should be chosen exchange rate less may be the price at which the link dinar against Currently the dollar after dividing it into a thousand dollars to 1.125 dinars a good price.

* Writer specializing in economic affairs – Beirut