Change the Iraqi currency and the expected effects

Date: Monday 02/27/2012 19:42

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 five Thousands equal to 5 dinars new and hundred thousand equal to one hundred new dinars. and will be the new currency in 2013 and will take bring new currency to replace the current two-year void at the end of the old currency, but banks will continue to receive for 10 years then for the purposes of the switch and not for circulation. The source added that the value purchasing for the new currency will remain equal to the value of the current purchasing power of currency. Valslah that worth a thousand dinars now become a value of the new currency dinars, and that their current million dinars become worth a thousand dinars, and so on. Because of the importance of the subject and a misunderstanding of some of it as there are those who believe that it is possible to make profits from buying the Iraqi dinar present and sell it in the post, must be asked 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 offsetting between the two currencies existing and new so as not to cause the switch to damage one? can say in answer to the first question that the Iraqi dinar was, until 1981, partly covered with gold and foreign currencies (70 percent), permissions and partly because the Iraqi treasury, Iraq was applied to the vestiges of the gold standard. In order to maintain the cover, has been the successive governments linking 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. and the success of this linkage introduced administrative restrictions on foreign exchange, both, trade 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 fading precautions Iraq’s vast foreign currency after the outbreak of the Iraq war – Iran and the impact of war spending exorbitant, left the government of a law 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 blockade economic embargo 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 oil exports and reserves of the country abroad, and turning to the Iraqi Central Bank to regulate the auction day to sell the currency to banks, the value of Iraqi dinar than three thousand dinars to the dollar to about 1125 dinars now. deprived the Iraq war – Iran and the economic blockade after the dinar many of the Iraqi mind the 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 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 Iraqi economy and return to dealing in dinars only. As for your second question, and most importantly, Vldman relationship offsetting between the two currencies existing and new, You need the monetary authority to issue instructions provided on the following: divide the Iraqi government expenses, including salaries of staff on A as well. The civil servant who receives currently 1.5 million dinars become a salary of 1500 dinars again, and divide the price of all goods and services on A as well, becomes a commodity that currently worth a thousand dinars, equivalent to the JD and impose censorship on implementation. divided existing debt on individuals and the government, companies and the banking sector A as well, A person who 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