CBI’s Saleh: And an economic point of view; Project deleting three zeros and cash transaction costs

In light of economic conditions and volatile financial and inflationary pressures that has befallen our country before, and led to negative effects on the regularity of the commercial market and labor markets and production and citizens’ standard of living, has generated many distortions in the structures and economic relations, And among which was Seen block cash, many zeros, of little value, and in a manner not commensurate with the future developments in the present and future of the Iraqi economy, which requires finding a solution to these conditions and offal, and these solutions reform management system currency through restructuring and the deletion of zeros to control the flow and manage the cost of the money supply in an optimal manner.

The trading bloc cash exporting more than the 37 trillion Iraqi dinars to the various groups as reflected by the number of securities traded $ 4 billion and banknotes are the product of a long period of inflation and economic decline, rising for example index of consumer prices base 1993 from 100 to 200,000 in the midst of the year 2003, which means that the item was sold for 100 dinars became sold for 200,000 dinars … And so on. And under such circumstances, the deterioration of the value of the currency category increased rates greater than 25 dinars to 25,000 dinars, which means that inflation is added zeros.

* Does not fit the current denominations with the current economic situation and the next. For example, before the outbreak of the Iraq war – Iran was the category of 25 dinars equivalent to $ 75, purchasing power parity, the time or the equivalent at present 300 thousand dinars. We have added inflation in the country over three decades zeros to the currency, and although it did not raise those zeros of the purchasing power of the largest class of the currency, is 25 thousand dinars, which is equal to $ 21 a day. We need today to restructure the currency. Valasfar large means large block of cash in circulation today approximately $ 30 trillion dinars, which requested the circulation of cash directly to the cost of large-counting and what it takes from the time and spatial properties and security. In the price system, is price is the value, expressed in cash, and then the cost structure and wage and salary payments and Akiem transactions, however, all became not commensurate with the country’s need to cash management system, consistent with the restructuring of the real sector and price levels reached. The country needs to monetary system easy to handle and small groups and large reflect the cost of the real structure. (See details later in the margin of the page).

And notes that during the period 1990 – 2007 increased inflation index of consumer prices to 400,000%, and with a view to simplification, the item was sold for one hundred dinars before the start of the war in Kuwait in 1990 became sold for 400,000 dinars in the year 2007. Note that the value of the Iraqi dinar twice and fell sharply during the period 1990-1998 at a rate more than 99% against the U.S. dollar. The first drop was in 1990, and drop the other was in 1997, and increased by 93.2%, making grossing decline in Iraqi dinar exchange rate against the dollar by (minus 99.99%) at the end of the year 1998, and that during this period alone Inflation in the record CPI 45000%.

Taking what we learned that inflation means himself prices cash money price on goods and services (ie, how much money we need to swap package of goods and services .. Whenever increase the amount of money allocated to the swap on the package itself means that there inflation or a rise in the price of money). Noting that the value of money is inversely proportional to the price of money, and that price is the value of goods and services expressed in cash *.

(*) Social studies indicate that the average Iraqi doctor’s monthly income was not worth the purchasing power in the nineties of the last century but to buy 30 eggs and 20 piece chicken baked in that month, and over the years the economic blockade. Also, a lot of workers in different institutions may quit work because monthly return does not cover transportation costs to the workplace. And do not forget how they are created distorted markets in the country bartered materials used furniture and durable goods and clothing to buy flour or sugar and fill the minimum needs of families for food. And the agricultural sector itself as a sector food producer has deteriorated mess, since the seventies of the last century because of the deterioration of the countryside and a Bria oil immersion in public office and the militarization of the country, during the period 1972-1982, for example, the average annual growth in the agricultural sector (minus 1.1%). While the rate of growth in the sector between the years 1962-1972 has reached 7.1% annually. With the show that all commodity sectors witnessed a deterioration in the growth over the years nineties especially the agriculture and industry sectors.

Today, average per capita income rose Iraqi annual gross domestic product to more than $ 5,300, after he was no more than $ 750 before the year 2003. And the average government employee income is nearly double the average per capita income of GDP and an estimated $ 10,000 annually.

Since the money is anything agreed upon the community to become a medium of exchange and a store of value and unit account, the money (legal) issued by the monetary authority under the law and with the power of discharge of the receivables, seen as a social institution Social Institution, where increasing the efficiency of the economy and its operations to move the exchange efficiently those social institution any money, and vice versa. Continuous inflation have led to higher currency of 23 billion dinars in 1991 to approximately (30) trillion dinars at the present time, and the largest category currency rise from 25 dinars to 25,000 dinars over time. Thus, drawing inflation figures of new currency traded add three zeros which increased the amount of cash operations in nominal and arranged the production costs in large quantities, accompanied operations, storage, and distribution of promised, sort and check to accompany her, and levels doubled, helped the growing operational risks associated with Operational Risk.

Under price stability and optimism in Iraq Development, it became necessary to hold radical reform on the system of currency management, and that re-structure commensurate with the price structure new different and stable levels of wages and salaries, which differed significantly from the last thirty years, as well as dealing block large cash weak components so are the largest category currency is worth only U.S. $ 21 at present. Noting that the rise in gross domestic product of Iraq from $ 140 billion at year-end 2011 to more than $ 230 billion at the end of 2015, will raise the money supply exported from 37 trillion dinars to about 70 trillion dinars. And weak structure in the currency structure as mentioned above may take adds cost called the cost of cash transactions in terms of trading, whether between individuals themselves, individuals and banks within the banking system itself.

** Unto demand for the U.S. dollar (especially the category of $ 100) is an urgent need to settle the cash transactions in the domestic market beyond the control of monetary policy to the fact that market is looking at transactions into categories largest currently unavailable but embodied category U.S. currency large for easy carry and circulation to reduce the cost of Trading cash or cash transactions. So the Iraqi monetary system has become an urgent need to reform the administrative system of cash payments to be there GROUPS high purchasing power of cash in circulation, easy pregnancy and acquisitions, in order to facilitate exchanges cash for transactions or trading purposes. Noting that the imbalance in the structure or installation of the current monetary units has depth of problems (the state) which arranged undesirable effects on the effectiveness and performance of monetary policy.

In Sweden, for example, having now one of the best systems of cash payments in the world, however, the cost of cash trading of counting, transport and storage of the coin, costing the national economy accounted for 4% of the GDP of Sweden. How we compare this in a country like Iraq shall be managed so amounts cash tremendous weak structure, which adds cost cash transactions perhaps up to 8% or more of GDP, a burden borne by the individual in his dealings which took reduces the efficiency of cash as a social institution support to institutions economy including different market, as evidenced by the limited large cash transactions to pay in U.S. dollars, which means bringing other country in the currency trading to prop up cash transactions because of falling efficiency and installation of the current monetary bloc.

And raises the multiplicity of zeros on the denominations with declining purchasing power has enormous difficulties, including the difficulty of expression for the monetary value, as well as difficulties monetary operations itself and technical problems in the recording of statistical data and registration in the accounting books and changing computer systems and systems adjustments, as well as show prices figures long difficult sometimes even counters or digital devices read Asfarha in gas stations or other digital devices.

On this basis, there is a need to reform the system of cash payments through the following advantages:

First – on the horizontal plane: deleting three zeros.

– Convert 37 trillion dinars to 37 billion dollars by deleting three zeros from the current currency and replace new currency which facilitates handling arithmetic with numbers are less numerous in terms of accounts of the federal budget, the budgets of banks and companies, as well as balancing family cash (individuals) without arranging any change or alter the monetary income or wealth for natural persons and moral, as well as the lack of impact on the contracts and obligations between natural persons and legal entities all. On this occasion, like David Hume (a pioneer of the science of economics preschool classic in his famous political debate or political debate Political Discourse, published in 1752) the impact of price levels par with a high amount of money, such as the transition from figures Romanian to Arabic numerals (which figures English now), this move does not change the basic principles of arithmetic or mathematics. High amounts of money leads to higher prices for the same without the impact on the results of the real economy.

Secondly – the vertical plane: restructuring and currency composition

– Whereas the large category of $ 25,000 dinars are alone (two-thirds of the volume of securities traded) the issuance of larger groups mean reduction of four billion banknotes currently in circulation and converted into an equal number (01.18) billion banknotes. As Stakhtzel large groups of currency nearly 80% – 90% of the total issued new categories to trading (such as 50, 100,200 new dinars).

Based on the above, the cost of cash transactions between individuals and banks and between individuals themselves natural or moral, inevitably fall in terms of the costs of counting and checking. Given the fact, that the banknotes traded eroded the average over a period of five years, which means replacing enormous mass weak structure and consequent costs typographical specifications high security is another burden borne by the issuing authority cash is a relic management system cash, generated economic downturn former became not fit and stability and the desired economic progress. In conclusion, the reasons for changing the current currency express the fruit of economic stability and the success of the policies of the Central Bank of Iraq to maintain stability, and of the stability of the exchange rate of the Iraqi dinar and falling inflation Arranged to one decimal place and build foreign reserves support the Iraqi dinar unprecedented levels achieved during the past thirty years, which is the cover of the Iraqi currency. Add to improve the system of cash payments and make it leave adhesion and installed in the past and actual economic and reconstruction on the future of economic development and real and nominal givens. So, has prepared the Iraqi Central Bank’s strategy long-term viable future when there is appropriate opportunity and gradually, according to the clear instructions and regulations guiding, providing protection of the rights and interests, including fits and stage boom coming and expected economic growth, as will increase the average per capita income in the coming years to more than once, and will step steps towards economic progress, which requires a reform of the waste stages of inflation and may require some legislation in this regard.

deputy central bank governor