CBI: CBI study entitled: Central Bank of Iraq and the evolution of monetary policy
Powerpoint presentation here
CBI study entitled "Central Bank of Iraq and the evolution of monetary policy and banking supervision," submitted CBI is one of the oldest central banks in the Arab region, where it was founded and started its work in 07.11.1947 under Law No. 43 of 1947, as a symbol of national sovereignty. And capitalized at (100) billion Iraqi dinars, has four branches spread over the provinces of Basra, Mosul, Arbil, Sulaimaniya. The aim Bank granted full independence in the formulation and implementation of monetary policy and carry out its other functions like the evolving international central banks, has released its new law No. 56 of 2004, which allowed him to financial and administrative independence and legal.
1) - the goals and functions of the bank and for the purpose of implementing the provisions of its law above the bank and business functions listed below and contained in the provisions of Article (4) of its above-mentioned law:
1 formulation and implementation of monetary policy in Iraq, including the foreign exchange policy.
2 possession of all foreign official reserves of Iraq and his administration in accordance with the provisions of Article No. 27, with the exception of the government's operating balance.
3 possession of gold and management of stocks of gold.
4 provide financial advisory services and the government pursuant to the text of section IV of the law.
5 provide liquidity to banks and in accordance with the text of articles 28 and 30 of the law.
6 issue of the Iraqi currency and managed in accordance with Section VII of the law.
7 compilation and dissemination of data on the banking and financial system and economy data in accordance with the provisions of Article No. (41) of the law.
8 perform any additional tasks or transactions occurring during the exercise of the tasks set forth in this law.
9 Moreover may CBI to take action as it deems necessary to do the following: a fight against money laundering and terrorist financing on the basis of Law No. 93 of 2004.
B put rules governing the work of companies and lending companies provide small loans and any non-banking financial institutions are not subject to regulation under Iraqi law, and supervision.
10 is the Iraqi Central Bank the power to make all of the regulations in order to implement this law and to carry out his duties and the issuance of rules of procedure and general guidelines for the regulation and management of the bank.
2) - independence CBI is independent central bank in different countries of the central themes in the work of these banks, after expanded functions and powers of the banks issuing its founding and its appearance for the first time to central banks about their potential this word of the duties serious in maintaining economic stability , and achieve sustainable growth and reduce inflation and reduce unemployment and maintain the exchange rate, and improve the real value of the local currency compared to international currencies, which would contribute to improving economic welfare, as well as "all duties other of bank for banks and last resort for lending as well as to conduct oversight on banks and financial intermediaries , and the fight against money laundering and terrorist financing and counseling to the state and its institutions in matters monetary, economic and financial. there are a series of legal changes witnessed by the Iraqi Central Bank Law was revoke a law it was set No. 43 of 1947 Act No. 72 of 1956 and its Abolition, and a new law has a number 64 for the year 1976 and amended by Act No. 12 of 1991 and was most recently the issuance of Law No. 56 of 2004 in order to enhance currency and ensure its independence to be in the ranks of central banks advanced globally. was awarded law referred to above CBI recipe independence including its work, and Paragraph (2) Article (2) to enjoy the Iraqi Central Bank independence, including the efforts in order to achieve its objectives, central bank does not receive any instructions from any person or entity, including government agencies, except for text contained therein providing otherwise, as well as "all respect this independence. Consistent with the provisions of Article (26) of
Law above that banned the Iraqi Central Bank lending the government, or any public body owned by the state, either directly or indirectly with the exception of buying government securities as part of market operations, so it has become CBI independent "his tools, too, is no longer funded biggest to finance budget deficits State public as he did so under duress during Para past to meet the needs of public spending, and the picture that led to the vibration and the destruction of elements of economic stability in the macroeconomic, and deterioration of the growth, and the loss of investment opportunities and stability. reflected independence CBI clearly in the following areas:
1. its association with the House of Representatives, and not subject to any other party based on "its law No. 56 of 2004.
2. Its failure to lend the state and its institutions or guarantor for third parties, or buy tools the public debt, but from the secondary market in order to provide liquidity to banks in necessary cases, based on "the provisions of Article (26) of the law.
3. Checking accounts by auditor international, as well to normal audit carried out by the Office of Financial Supervision According to the "international standards.
4. Having published reports and financial statements on its website, and these data are published and available for various institutions and the public.
3) - monetary policy of the Central Bank of Iraq are important preparation and implementation of monetary policy of the Central Bank of Iraq among the most important tasks undertaken by the bank to achieve a number of economic objectives, including achieving Alastaqraralaguetsada, improve Iraqi dinar exchange rate against foreign currencies other, achieving economic well-being, and through fight inflation and reduce the rates of unwanted growth. Passed the monetary policy of the Central Bank of Iraq in several stages and was mostly captive workers weakened the effectiveness of pre-2004, and two backward economic environment in which it operates, and poor coordination between policy Almkadih and fiscal policy. Stayed These factors valid and effective monetary policy until the beginning of 2004 when a new law of the Iraqi Central Bank No. 56 of 2004, which guaranteed his Alastqlaaah full in doing work and the formulation and implementation of monetary policy adoption package of measures is the traditional suit with the orientations of the Iraqi economy to a market economy such as giving up responsibility for planning, credit and determine interest rates payable and receivable, charged by or paid by banks and left free to determine that the boards of directors of banks themselves, as well as the launch of foreign exchange and not subject to any restrictions except as regards the law against money laundering No. 93 for the year 2004. Monetary policy instruments used in the Iraqi Central Bank Central Bank used its new monetary policy tools, depending on the monetary policy instruments used and indirect of the following:
- First auction of foreign currency: Bank follow this technique in 04/10/2003 in order to stabilize aggregate demand and the overall level of prices , and reducing inflation, and adjust the levels of liquidity and the unification of exchange rates, and meet the demand of banks and citizens of the dollar.
Secondly existing facilities: It aims to give security for the banks to manage excess liquidity has within a moderate level of interest rates, and that expansion of the monetary policy objectives related to interest rates short-term by the adoption of bank rate (rate monetary policy) as a price Tahiria, in addition to the exchange rate between banks within operations (interbank).
Thirdly facilities lending list: Work began this type of facility in August 2004, as the central bank to grant facilities for banks based on "the fundamental objectives of monetary policy in order to maintain financial system regularly and properly and safely.
And have this facility on three types: primary credit: grants Bank credit "initial" source support the financing of the bank, which is in a sound from the viewpoint of the Central Bank, the Bank uses this credit up to 20% of its capital for a period not exceeding fifteen days ", or for additional approval Central Bank at an interest rate two points above the price policy where the cash interest rate for the first credit is currently 8%.
Secondary credit: a short-term credit granted by the Central Bank to the banks up to one month, and is the source of support for the bank is able to raise funds from the market. And granted at an interest rate equal to the rate of monetary policy plus three points, where the interest rate of the secondary credit currently 9%.
Fourth facilities last resort: the central bank in exceptional circumstances to grant credit to the bank, in case if the bank is able to perform its obligations, from the viewpoint of the central bank, and provides a guarantee appropriate, in order to improve liquidity has and have issued the Minister of Finance to the Central Bank guarantee written on behalf of the government to repay the loan and the bank offers the program to be adopted by the bank to improve its liquidity and return to rely on sources of funding from the market. The bank imposes benefit increase by three degrees and a half on the initial interest credit and be available for periods not exceeding three months and period will be extended by a decision of the bank rate has reached 9.5%.
V. facilities filing list: Work began in 01/03/2005 which accept deposits Iraqi dinar and the U.S. dollar exclusively "to absorb the excess supply of liquidity and public investment has to meet interest in the case of desire banks to invest for a period of 7 days. Calculated interest is 4%. and change this price from time to time according to economic conditions and calculated the amount of deposit Night of the bank within the requirements of the statutory reserve. other tools of monetary policy are used to influence the multiplier credit include: Statutory Reserve started in 11/01/2004 and are hereby oblige banks deposit 20% of total deposits, in addition to 5% of the total deposits remain as money liquid in the coffers of the bank itself. auctions treasury transfers: a remittance type short-term domestic debt, and issued these orders from the Ministry of Finance to finance temporary disability in the state budget, It is surprisingly different, including:
- a - Auction remittances and the Ministry of Finance include:
1 - Auction of (63) days and (28) days, which began to be applied in January 2006 has stopped working in the same year.
2 - auction (91) days 1/7/2004 until December 2009.
3 - auction (182) on the start of July 2010 to the current time.
4 - auction (365) days, applied work during the month of August of 2009 and stopped work.
B - remittances central bank auction
1 - auction (91) days of entry into effect in January 2010 and so far.
2 - Auction (182) Days Bdoualaml in August 2006 and ended in March 2009.
3 - auction (365) on its introduction in June 2006 and stopped at the end of 2008. The bank aims to sell controlling liquidity through a multiplier effect on credit for being one of the types of investment to the public and the banking sector. Lending between banks: and is a means of liquidity management as banks prefer to borrow from each other before resorting to borrowing from the central bank. And with low interest rates which are temporary facilities and retrieved on demand. As the reality of the situation in Iraq refers to weak cooperation between the government and private banks or between banks with each other, the central bank seeks to urge banks to adopt to ensure proper liquidity management and achieve the goals of monetary policy. The sum of the above مايأتي: -
1 - The procedures and methods of current adopted by monetary policy to influence the phenomenon inflationary contributed to rein in inflation caused by factors of aggregate demand in the Iraqi economy by strengthening Iraqi dinar exchange rate and sustain stability, and use rates interest rate the central bank Iraqi.
2 - The Central Bank of Iraq still continue its monetary policy in the framework of achieving operational goals and intermediate of maximize the purchasing power of the Iraqi dinar and addressing inflationary phenomena so as to enhance the performance of the Iraqi economy in general and the impact on the standard of living in Iraq. About the situation of the Iraqi economy post-2003, the Bank's role in the reform of the economic structure and banking inherited Iraqi governments new post-2003, an Iraqi economy is weak suffers from imbalances deep structural is the rule of the oil sector as a sector generator of wealth and the main source of foreign currency used to finance the state budget, and with a backward sectors of the economy and infrastructure destroyed due to the serious damage sustained as a result of senseless wars carried out by the former regime as well as the destruction caused by the war to liberate Iraq.
As well as international debt owed by Iraq, which has affected its economic development because of the burden of this debt and Matanajh requirements to service debt payments and benefits, despite the efforts of the Iraqi Central Bank and the Ministry of International Finance to renegotiate with creditors in both the Paris Club and the London Club, which resulted in additional cuts from these creditors ranged between 80 - 90% of the total debt and interest with the rescheduled according to the agreements signed with them for this purpose. Iraqi government is facing tasks urgent for the advancement of economic reality outside the oil sector, which has made it the previous government effort ambitious ابتغت him increase the export of oil and the development potential of refining, in addition to rationalize public spending and increase investment expenditure within budget resources of the state, as well as dealing with human resources through operation and development. Given the fact that the central bank is State Counsellor of Finance and Economic Affairs for the purpose of addressing these imbalances and develop plans to invest financial resources efficiently and effectively and the development of banking and financial sector, has prepared and executed the bank plans cash, which would contribute to the development of economic sectors all through stimulation of the private sector and government sectors on Dealing with banks to attract liquidity and investment directed towards areas of developmental importance. Taken the monetary authority in Iraq a set of procedures and important steps on the monetary level, which aims to promote economic and financial stability and development, as well as for maintaining the stability of domestic prices to create a competitive economic environment based on the mechanism of supply and demand and so as to maintain the independence of the Central Bank of Iraq in the formulation and implementation of monetary policy
Among these actions: replace the national currency in the 01/15/2004 and the value (4) trillion Iraqi dinars Old and new legislation for banks number 94 of 2004 and the Law of the Central Bank of Iraq number 56 of 2004, which aims to rewrite the goals and functions of the Central Bank of Iraq and means of policy cash in accordance with the directives of the Iraqi economy to a market economy in addition to the bank to open the way for foreign banks to open branches in Iraq or participate in the capital of Iraqi private banks and without limits as well as the establishment of a window of foreign exchange for the provision of foreign currency to the banks and their customers in accordance with instructions regulatory prepared for this Purpose
The new law expanded the powers of the Central Bank of Iraq and granted full independence in all respects and placed under the supervision of the House of Representatives .. The bank also sought to change the monetary policy instruments in favor of quantitative tools (indirect), as is the case in developed countries, because the expansion of their use will expand the bank's ability to influence the private banking system and open market operations.
Also saw legal cash reserve for banks fundamental changes concrete, which represents reconsider mechanism calculated to ensure the rights of depositors by, and determine the levels of liquidity based on market demands the other hand, where the proportion of this reserve is currently 15%, 10% of them deposited in the Central Bank, and 5% cash liquid in the coffers of the bank itself. The bank also allowed banks to invest Night to Odaúaha has to meet interest currently stands at 4% as one of the intermediate steps of the Central Bank of Iraq as a new tool of monetary policy. In addition to his editing structure of interest rates paid by banks to depositors or Tqdina of borrowers as part of its policy of creating competition actors between banks, also strengthened the bank Msadnth for banks as part of his duties in the provinces on the safety of the banking system and financial through willingness to provide credit facilities primary or secondary or loan of last resort for the purpose of enabling the banks facing temporary liquidity problems have to meet initial interest credit plus 35% as allowed him to its law to buy treasury transfers from the secondary market for the purpose of providing liquidity for banks wishing to do so.
As the body of the new law the independence of the central bank by giving him the right not to grant credits or loans directly or indirectly to the government, or any public institution or Kianovernma except Maigom the Bank of efforts to boost liquidity at banks, stemming from the central bank reserves Iraqi custom (for economic stability which is an incubator for development).
As the Bank achieved important indicators in reducing inflation from 65% in 2003 to 5% during the past months of 2011 and to 6.1% in the month of January 2012, as improved Iraqi dinar exchange rate against the dollar about 40% of the exchange rate in 2003 of 2,000 dinars per dollar to become 1166 dinars / dollars now. It was also change the shape of banking supervision by the central bank of control banking dominates the list on the basis of compliance with the rules fixed inflexible to control banking (automatic) and preventive under the law of banking No. 94 for the year 2004 within the regulations and practical prepared for this purpose, allowing the banking system to work flexibly and efficiency in order to strengthen and banking performance ترصين and according to modern international banking standards. In addition to the ongoing work to develop the Anti-Money Laundering Office of the Bank's contribution in ترصين and efficient work of the Iraqi banking system and the dimensions of suspicious money with him.
4) - the most prominent challenges faced by the central bank faced the Iraqi economy a series of challenges most notably - the structural imbalance in favor of the oil sector, which has become its exports constitute about 90% of the total budgetary resources and total exports and after the imposition of the economic blockade in 1990 and which each to withhold the role of oil in exports excluding amounts very limited were smuggled here and there has led to depletion of public resources, while only government spending continued, prompting it to resort to borrowing from the bank through the issuance of treasury transfers that were sold automatically to the bank in the context of weak credit stark and the collapse of the institutions and state enterprises productivity has emerged this challenges in the following areas:
A - the conduct of monetary policy - not the internal and external balance and goal general budget Badze and current account.
B - Follow-up to the development of its monetary tools to manage interest rate and liquidity the banking market. - Weakness or lack of secondary market for bonds.
C - to maintain the integrity of the banking system - lack of readiness of banks to the application of international standards. - Weakness means of electronic connectivity and communication systems between public administrations and branches. - Lack of technical skills required to be provided to the banking employees in order to implement the new operational plans for the banks. - Lack of commitment by the banking sector to implement all laws and regulations and legislation issued by the Central Bank.
D - issuing cash - providing banknotes to the market as needed and efficiently - maintaining the quality of banknotes in circulation - currency counterfeiting
e - payment system and settlement - enhancing the efficiency of the system and speed in the performance and development - to meet the needs of Economy and keep abreast of developments in the field of electronic payments - reducing risks concerning the operation of the system.
5) - the Bank's approach for the coming years in light of the results of the analysis of the bank current and benefit from the results Bank adopts the following plans:
A - Policy: - strengthen the role of monetary policy of the Central Bank of Iraq to provide opportunities for stability and success of the national economy as only policy that are unique in addressing inflation and reduce annual growth rates in the general level of prices and the strengthening of stability in the financial system at the same time. - Maintain monetary stability in the framework of the National Development Plan 2010-2014 towards achieving comprehensive development and the commitment to achieve targeted economic indicators. - Achieve stability in the exchange rate of the Iraqi dinar in the context of a flexible exchange rate system orbit.
B - banking and financial institutions: - Periodic review of policies in force to ensure suitability of the objectives of the College and international norms and standards with assessment of banking services, support and development. - The number of rules and regulations for financial institutions banking, reviewed and developed on an ongoing basis with the effective application of regulatory standards. - Continue restructuring program and reform of the banking system. - Move towards the development of the work of banks through diversification of its banking operations inside and outside Iraq. - Keep up with legal amendments required by the implementation of the strategic plan in the area of control of banking institutions and non-bank and that facilitate the activation of bank supervision. - Expansion in the establishment of companies chock of the banking system, especially the companies small and medium-sized loans, and credit card issuing companies, and electronic payment systems companies.
C - the issuance of currency - moving towards maturation of the project to delete three zeros from the Iraqi dinar, any so-called reform of the currency management system (Rebasing). - Update sorting and counting and examination and destruction using modern mechanization.
D - the area of financial operations and debt management: - Work on the development and activation of the primary and secondary market for bonds and equities through: - the large banks to issue bonds (in the case of government approval). - The establishment of private banks and private sector companies to issue shares through central securities deposit system. CSD
- Post non-bank financial institutions as a retirement and the National Insurance Company in the primary market. - In the system will be linked CSD (Central deposit bonds), which is part trading system electronic trading system for the Iraqi market for securities in order to activate the secondary market.
E - investments: - follow the style of diversification in managing foreign reserves, whether bank balances or those run by on behalf of the government and invested a manner that achieves safety standards, liquidity and profitability, including believes adequate protection and avoid exposure to risk booking by creditors orders judicial. - To strengthen cooperation with central banks and international institutions sober in order to provide adequate protection to Iraq and then balances achieve another goal is to diversify the countries and currencies and tools and benefits.
F- Develop the work of the bank's assets management system with high efficiency and avoid risks in a scientific manner thoughtful as to achieve the safety of assets with reasonable financial gain. And - legal affairs: - develop legal frameworks of the Central Bank in accordance with the five-year plan through study and scrutiny of laws, instructions and regulations and memoranda of understanding banking related Central Bank Law No. 56 of 2004 and the Banking Act Iraqi No. 94 of 2004 and the Money Laundering Act No. 93 of 2004 . - Raising the level of legal advice provided by him and the degree of representation in state organs.
G - the fight against money laundering: - raise the performance level of the Anti-Money Laundering through the development of advanced programs for the exchange of information and access to the highest degree of coordination with other competent anti-money laundering inside and outside the country and reaffirmed the commitment of banks by law money laundering No. 93 for the year 2004. - Adhere to international standards issued by the Financial Action Task Force International) FTAF (and recommendations nine other private financing of terrorism in order to raise the international classification of Iraq as one of the countries cooperating in this aspect.
H - strategic planning and technical support: - formulating media policy and clear the bank aimed at spreading and deepening knowledge The banking culture. - coordinating and formulating comprehensive strategic plan for the bank and follow up their implementation in line with the strategic plans of the state. - cooperation with central banks sisterly and friendly, financial institutions and regional and international to achieve common goals.
i - information technology and payment system: - arrange for the selection of new banking system that meets need the Central Bank according to the present and future developments. - hard work towards linking branches of the Central Bank with the information center via LAN IIBN.
Building a system for linking banks for the purpose of adjustments for retail payments such as ATM and transfers through mobile device and الكارتات debtor and creditor. - Striving towards the development and modernization of the Iraqi payments system software with all its components. - Complete the implementation of the automation project of the bank.
J - the field of statistics and research and Periodicals - the preparation of studies and original research sober and supported by statistics pertaining to Iraq and its relations with the outside world, and periodic reports on the leading indicators of the Iraqi economy and visions of the future in line with the five-year strategic plan for the bank. - The adoption of international standards in the preparation and dissemination of statistics in Iraq page publication International Financial Statistics (IFS) and on the International Monetary Fund. - Issuing Annual Statistical Bulletin of the Central Bank of Iraq. - The issuance of the annual economic report of the Central Bank of Iraq. - Issue a monetary policy report quarterly numbers. - Issuing special economic magazine CBI, which includes many of the themes and economic research for the purpose of spreading cultural awareness and banking in the economic arena.
K - the area of management and services - human resources and career development - preparation and rehabilitation of cadres for the purpose of advancement of the work efficient and professional manner and to set standards for career paths for staff for the implementation of its strategic goals. - Administrative services - the provision of administrative services necessary for the creation of an enabling business environment. - Achieve maximum institutional settings according to international standards. Thirdly - Financing for Development and the possibility the central bank in financing for development, the monetary policy pour towards encouraging real investment and strengthen the development opportunities through the bank lending banks and through the secondary market to provide liquidity necessary, thus helping to deepen financial intermediation and raise energy credit in support of activity real , any stimulus credit activity bank to go towards the market and enhance the levels of funding required so as to ensure drive economic growth and achieve high rates of growth in the real sectors all, and to help at the same time to raise the efficiency levels of operating and optimal use of the country's resources human and material possible and available, and without Matard or omission of the monetary policy strategy and the requirements of water stability and economic balance.