Posted by Saanvi Singh
All About Iraqi Dinar

The March 10, 2014 announcement of the refusal of revaluation of the Iraqi Dinar by the United States government, and coinciding with the International Monetary Fund (IMF) of which the U.S. the controlling interest, rejected Iraq’s decision to reset its currency. This comes at a time when the Iraqi state is attempting to cease the Central Bank of Iraq’s (CBI) daily auction of foreign currency in that country.

According to the Iraq government, the U.S. is the lead beneficiary of currency auction currency proceedings in Iraq. Concerns about the survival and purchasing power of the Iraqi dinar (IQD) have overshadowed local interest in continuing the auction mechanism. The argument that the price of regional currencies in the most developing nations is leading to further economic problems was that impetus to the reset policy.

History of Parliamentary Decision

The history to the decision by the Iraqi government to revalue its currency saw two contradictory positions posited by Iraqi parliamentary committees instated to monitor the performance of the nation’s economy. The currency reset policy, proposed to eliminate three zeros from the currency denomination, fostered much debate over the feasibility of economic reforms, and the scheduled date for implementation.

In 2013, Iraq’s Parliamentary Economic Committee announced that the deletion of zeros from the nation’s currency would serve as an instrument to strengthen the country’s economy. The proposal, countered by the parliamentary Finance Committee, would also expose the country to risks, and especially counterfeit operations. Agreement over the weak outlook of the currency’s valuation and excessive issuance of the dinar amounting to multi-trillions of Iraq’s money supply, as well as the importance of correcting this condition in the interest of sustainable oil reserves, earnings and budgetary rules, influenced the Iraq government’s currency revaluation decision.

The Dinar Referendum Debate

Public debate over the proposed CBI revaluation of Iraq’s dinar led to discussions about economic impacts and implications to possible redenomination. Raising concerns about the liquidity of national reserves and trade exchange, the division among economists on the topic suggested that a simple solution may not be forthcoming. While some support for the proposed policy considered the country’s need to decrease inflation and unemployment numbers, the threat of economic instability was yet to be resolved by enactment of such a policy.

The amendment of existing monetary policy by the CBI had already been postponed several times leading up to the decision. One of the main factors was the reduction of the number of bank notes from 4 billion to 1 billion in circulation. Lack of confidence in the government’s ability to ensure foreign trade without restrictions, as well as the prevalence of counterfeit currency and widespread corruption topped the list of impingements limiting consensus by the Parliament. In addition to a reduction in unemployment, decrease in the nation’s poverty rate was expected to be result.

Dinar Exchange Rate, Federal Reserves, Oil Exports

Prior to the consideration of dinar revaluation by Iraq’s Parliament, the value of the country’s federal reserves stood at an estimated $80 billion. Improvement of Iraq’s federal reserves as a result of a recent increase to oil exports has meant that the country is in a far better position for revaluation of its currency than it has been since the reinstatement of a civil government.

Although not published by the CBI, there was decline of rumor that there had been a reduction in the country’s gold reserves which stood at about 29,730 tons in 2013. Furthermore, the status of the U.S. dollar as the main currency of Iraq’s reserve accounts held by international banks has continued.

Dinar Guru Predictions

While artificial inflation of currency is not an uncommon monetary policy strategy for developing and emerging markets undergoing economic instability. Iraq’s post-war situation has contributed to the delay in growth of the nation’s GDP which would make such a strategy viable. The current valuation of the Iraqi Dinar connected to devaluation policies of Saddam Hussein’s former regime, whereby multiple zeroes were added to the actual value of the nation’s money, is inconsistent with what the new government policy of Iraqi dinar revaluation.

Monetary policy experts confirmed that the Iraqi government’s approval of a bill to reset the currency would reduce the size of the money supply; resulting in the restoration of investor confidence. At the moment, Iraq’s substantial oil reserves serve as the primary asset combined with the nation’s balance of gold. The currency reset will contribute to the restoration of the Iraqi dinar to its strength. Had the policy been approved by the IMF and the United States, the dinar rv would have reinstated dinar trade at a value approximately more than three times the value of the U.S. dollar. To this end, no recommendation of exchange trading of Iraq’s existing currency is advised at this time.