Why is the Central Bank of Iraq refusing to devalue the dinar? Al-Marsoumi answers in 13 points.
Why is the Central Bank of Iraq refusing to devalue the dinar? Al-Marsoumi answers in 13 points.
2026-01-08 | 08:03
Alsumaria News–
The economist revealed the economy, Nabil Al-Marsoumi Regarding the fundamental reasons that drive Central Bank of Iraq He rejected the devaluation of the dinar against foreign currencies, warning of disastrous repercussions that could affect the country’s social and economic structure if such a decision were made.
The decree identified the reasons in 13 main points:
First: The poor class is usually more vulnerable to the negative effects of external shocks compared to the rich class. Financial crises affect the income of the poor through high inflation rates. The poor usually keep their money in cash, and therefore following a policy of currency devaluation will lead to a decrease in the purchasing power of their money, in addition to a decrease in their real wages, which increases the situation of the poor.
Furthermore, currency devaluation can disproportionately affect the poor through its impact on price levels. This policy not only leads to higher import prices, which disproportionately affect the poor—especially if the imported goods are essential items like medicine and food—but it also fuels domestic price increases. This occurs either because domestic industries rely on imported resources for production or because merchants themselves raise local prices in line with the rising cost of imported goods. Ultimately, it is the poorest families who suffer.
Secondly, the impact on creditors and debtors: Currency devaluation affects both creditors and debtors, and this impact varies depending on the currency in which the debt was denominated.
a) If the debt was denominated in the national currency, then the creditor is the one who suffers.
b) However, if the currency of the debt is a foreign currency, the debtor will be the affected party. The situation will differ for the creditor and the debtor, as a devaluation of the local currency means an increase in the value of foreign currencies. Units In local currency.
Third: Devaluation often leads to capital flight abroad to avoid its devaluation, in addition to the problem of speculation. This is especially true if individuals and businesses anticipate the devaluation, which can trigger a chain reaction of further devaluations.
Fourth: There is a concern that the desired goal of currency devaluation—improving the balance of payments—will not be achieved, as neither exports nor imports are sufficiently efficient to absorb changes in relative prices due to a lack of elasticity (pessimistic elasticity).
Fifth: The devaluation erodes citizens’ cash reserves in the national currency, whether hoarded or deposited in banks.
Sixth: When domestic prices rise, the devaluation triggers a spiral of wage and price increases, undermining improvements in competitiveness.
Seventh: Foreign investors, when converting their profits into their national currencies, will find that these profits have been eroded by the depreciation of the host country’s currency against its own or the dollar’s exchange rate, which discourages new investments.
Eighth: Currency devaluation is likely to have psychological effects, weakening investor confidence in the country’s economy and negatively impacting the attraction of foreign investment.
Ninth: Currency devaluation also negatively affects domestic industries that rely on imported raw materials and supplies for their production processes, due to their increased cost. This may lead these establishments to either reduce their production volume or raise prices by the amount of the increased cost. However, this could lead to a decline in demand for their products, especially if nominal wages remain stagnant.
Tenth: The cost of external loans increases, requiring a larger allocation of foreign currency resources to service them if the loan is denominated in a foreign currency. This is compounded by the decrease in the value of new loans when denominated in the national currency, a common occurrence for most developing countries.
eleventh The devaluation will lead to the sale of privatized public institutions at less than their true value when valued in foreign currencies.
Twelfth: Real estate prices and construction costs will rise due to increased costs of building materials.
Finally: Devaluing the dinar against foreign currencies should not be the first line of defense, nor should it be a means to cover up shortcomings and failures in trade, investment, financial, and other policies. It should also not be…Asylum To the easy solutions that achieve limited financial resources at the expense of harming the vulnerable and poor segments through inflation that makes the poor poorer and the rich richer, as inflation is a tax without legislation.
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