Promoting stability: The importance of the assets of the Central Bank of Iraq

Promoting stability: The importance of the assets of the Central Bank of Iraq

3-3-2024

Researcher Shatha Khalil*
When reports show that the assets of the Central Bank of Iraq have risen to 207 trillion Iraqi dinars, it is more than just a financial statistic; It symbolizes an enormous store of wealth under the supervision of the central bank. This massive figure reverberates across Iraq’s economic landscape and defines a pivotal role for the central bank in directing the country’s monetary affairs. Let us delve deeper into the implications of this important event and the complex mechanisms underlying the management of these assets.

In the world of central banking, assets include a variety of financial instruments and holdings, ranging from foreign currency reserves to gold reserves, government securities, loans to commercial banks, and a variety of investments. These assets serve as the bedrock of a central bank’s operations, giving it the ability to navigate the ebbs and flows of the economy deftly.

With assets amounting to 207 trillion Iraqi dinars, the Central Bank of Iraq stands as a formidable custodian of wealth, armed with resources that have the potential to stimulate economic stability, regulate the money supply, tame inflationary pressures, and strengthen the Iraqi currency’s exchange rate. Iraqi dinar. Such financial prowess enables the central bank to exercise its influence wisely, intervene in the economy when necessary, and adhere steadfastly to its mandate of promoting monetary stability and stimulating economic growth within Iraq’s borders.

However, behind this veneer of financial strength lies a maze of complexities that govern central bank asset management. One pivotal aspect involves the issuance of cash, a core function of the Central Bank of Iraq. By selling cash to various government and private agencies, the Central Bank drives the wheels of trade, as the Iraqi government emerges as the first buyer of this currency in circulation.

Amid the specter of financial balance, a dilemma looms surrounding the Iraqi government, which is the dissonance between sources of revenues and expenditures. Iraq, which relies mostly on oil, finds itself in a paradoxical trap where US dollar-denominated revenues conflict with expenditures mostly in Iraqi dinars. This contradiction underscores the pivotal role played by the central bank in bridging this financial gap, an achievement achieved through skillful management of foreign currency reserves.

The strategic deployment of excess foreign exchange reserves emerges as a key pillar of the central bank’s arsenal, with investments directed to a full range of low-risk avenues. Gold, deposits in foreign banks with sterling credit ratings, bonds, securities, and deposits in various financial institutions form a bulwark of the central bank’s investment portfolio, which is carefully coordinated to optimize returns while mitigating risks.

Lurking in the maze of investments are potential risks, none of which are more evident than the specter of debt obligations. There is a large segment of the Central Bank’s assets tied to the obligations of the Ministry of Finance, which is unstable and vulnerable to fluctuations in economic fortunes, especially in light of the fluctuation of oil prices.

Moreover, the stability of central bank assets remains beholden not only to economic fluctuations, but also to volatile geopolitical winds. Political imperatives, exemplified by the potential freeze of reserves by foreign central banks amid diplomatic wrangling, are casting a shadow over the haven of financial stability carefully nurtured by the central bank.

These challenges are further exacerbated by the restrictions imposed by geopolitical imperatives, which force the central bank to deal cautiously in its investment projects. Fears of antagonizing Western counterparts prompt a measured approach, restricting investments in institutions associated with American hegemony, albeit with an eye toward global transformations that may herald a seismic departure from this status quo.

Ultimately, the narrative of the CBI’s assets goes beyond mere financial metrics; It embodies an epic of economic management intertwined with geopolitical imperatives. As Iraq grapples with the omnipresent specter of American hegemony and navigates the treacherous currents of global finance, the central bank stands as a bulwark against economic volatility, its assets serving as a linchpin in the nation’s quest for stability and prosperity.

Al-Wahd Al-Eqtisadiah / North America Office,
Rawabet Center for Research and Strategic Studies

rawabetcenter.com