Bubble exchange rates and challenges the stability of the Iraqi dinar

Bubble exchange rates and challenges the stability of the Iraqi dinar

July 6, 2015 11:29

Iraqi DinarDr. Haider Hussain Al Tohme

Euphrates Center for Development and Strategic Studies

The form of the sharp deterioration experienced by the Iraqi dinar exchange rate recently a new threat to the process of growth and financial and economic stability in the country, especially with the decline in economic activity and rising unemployment and poverty rates due to fiscal austerity imposed by the 2015 budget.

As is the case for oil prices, constitute the Iraqi dinar exchange rate obsession chronic of living of the ordinary citizen; because most of the goods available link in the market price of the dollar, which also means the close link between the dollar and levels of inflation rate in the country, when rising dollar exchange rate (increase Number of dinars to buy one dollar) rise automatically the prices of imported goods in the markets more; because of the greed of traders on the one hand, and Thothm of future increases in the price of the dollar on the other hand.

Iraqi dinar has lost in a record period of more than 15% of its market value, while the Iraqi dinar exchange rate decreased from (1220 dinars to the dollar) to (1420 dinars to the dollar). It can highlight the most important factors that contributed to the sliding of the Iraqi dinar exchange rate recently and as follows:

1. dominate the financial performance of monetary policy, has emerged clearly after determining central bank dollar sales ceiling of 75 million dollars a day (Article 50 of the 2015 budget), and assigned to the central bank collects the customs taxes on imported goods.

2. deterioration of the price of crude oil in the world markets and the scarcity of his successor in the flow of foreign exchange for the country, which has increased the expectations of speculators to re-evaluate the Iraqi dinar in line with the decline in oil revenues.

3. The financial and administrative corruption, which included an auction sale of foreign currency for years because of poor oversight and the dominance of political wills to enter the auction, as well as the existence of suspicions of corruption multiple in private banks involved work in the currency auction, and the involvement of a large number of them smuggled dollar abroad, and the lack of laws deterrent and decisive challenge of it.

4. twice the independence of the Central Bank and restrict his freedom in formulating monetary policy and selection of appropriate monetary instruments to achieve the financial and monetary stability, and try to swallow governmental authority monetary institution as an independent body.

5. collapse of the productive apparatus of the country and the loss of the ability to produce the most basic goods and transformation of the Iraqi economy to a large market for industrial and agricultural goods imported, which increased the demand for foreign currency to pay off the uncontrolled import bill.

6. deterioration of the security situation and the increasing acts of violence in the country with the control of the organization “Daash” multiple Iraqi cities, making the outlook pessimistic especially from the presence of the owners of the huge capital in the country on the one hand and foreign investors on the other hand, and this is what made the direction of movement of the dollar towards the outside constantly.

7. At the political level, the political climate of sectarian and cramping the political class did not support a minimum of economic and monetary stability in the country; because of the continuing collapse of the political process or a political coup overthrew the government and its institutions expectations.

8. political quota system, which extolled the political scene in Iraq cast a shadow over the economic landscape, through the removal of experienced and competent of all ministries and economic and financial institutions for the benefit of a layer of eager politicians for money and power, increasing the deviation and the deterioration of the work of these institutions in the performance of their duties.

In order to achieve stability in the Iraqi dinar exchange rate, the government should show greater flexibility with central bank decisions and try to decode the correlation between the functions of the central bank and other institutions (such as the Ministry of Finance).

On the other hand, should the Iraqi Central Bank on the development of new monetary instruments, non-auction currency, to stabilize the dinar’s exchange rate from about Iraqi oil sale exclusively in Iraqi dinars. And tighten sanctions on the financial and banking authorities frivolous stability of the dinar exchange rate by promoting rumors and smuggling of currency and acquisitions on the dollar to achieve economic and political goals.