Shabibi:Monetary policy can serve the stability objective development 10/1
Monetary policy can serve the stability objective development
The Central Bank supervises the cash flow in a way that prevents inflation, this is the main objective of the Bank, which did not fall within his or her duties or terms of financing productive projects (agricultural or industrial), these long-term projects, the Central Bank focuses its work in the short term. The basics of the work in the Central Bank.
It may be argued that lending to finance so it projects through banks, but lending is not possible without the initiative of the Central Bank to provide funds for banks. That lending to productive sectors, and payment period may take a long time and can interfere with the short-term nature of monetary policy.
If we are talking about the Central Bank's contribution to development is targeted by the Central Bank recently it mainly a financial contribution, to the followers of monetary policy not to under-estimate the contribution of development to the Central Bank such as price stability and financial stability and regulation of credit, according to article 3 of the Bank Act the Bank in line with its objectives to promote sustainable development. But the objectives of price stability and fiscal priority in all circumstances. That monetary policy makers to appreciate the importance of the relative weight of both stability and development, which goes for details of monetary policy and indicators. The issue of choice between stability and development are of particular importance when carrying the country's resources. We would like to point out here that when the Central Bank refused to lend the Government years ago did not have the Government choose between stability and development and the Government did not need real resources from the World Bank.
The Central Bank serves development and creates an appropriate environment through monetary and economic stability, the Central Bank's reserves is to support exchange rate stability and to economic stability, we are not just talking about savings, the cash reserve is used only when government resources are depleted or are on their way to disappearing, either saving it uses when there are no sufficient resources.
To illustrate this point we hash the article 3 of the law on the Central Bank between the goals of stability, development, article that ((the main objectives of the Bank stability of domestic prices and work to maintain steady financial system based on competition in the market.
the Bank is in line with the above-mentioned objectives to promote sustainable development, employment and prosperity in Iraq)). This article includes part a stabilizing development part, deposits of banks in various bank facilities remain at the Central Bank and not Bank launched to the market (by tightening monetary policy and restricted) because the inflationary situation in this market there is a need for economic stability. But these deposits will go to market (by easing monetary policy) if there are deflationary situation as the situation of the Iraqi economy at present. This transaction between the Bank and the market determined indicators of monetary policy used by the Bank as a policy. I reacted harshly difficulty to move the resources to market banks due to the security situation which has only one road access in the foreign currency market. The Government and the private sector to provide appropriate conditions in the market, both politically and economically, even moving some resources from the Central Bank, if the Bank decided to cut interest rates in various facilities, applicants will move into the market.
The latest Central Bank action, which aims to lend to banks and then sectors can come through the conversion of local currency through facilities provided by the Central Bank, the problem in this method using resources that could have a role in making monetary policy and expand its role and increase its flexibility. The global financial crisis has led to to enter the Central Bank in the field of quantitative management policy matter which head the Central Bank to print money and lend to banks. This is not linked to specific sectors, and encourage this policy is the prevailing recession, that makes the goal of monetary policy, the Central Bank's transition from fighting inflation to growth.
The Central Bank's contribution to development is by easing monetary policy and the lack of emphasis or through creating conditions for financial facilities for developmental use as the Central Bank tries to date in Iraq. Inflation occupies a lower importance thus lending or financial assistance and generated growth acquired greater importance.
The World Bank lending for projects is long running, however any developmental nature of monetary policy must be driven by policy and not money, wrote me low interest rates, for example, or reducing the legal reserve. You should be careful of exhaust, it will require a reduction in the value of the dinar.
World Bank initiative should focus on monetary policy too lenient, allowing banks to funds used for development. In this case, the Central Bank will remain faithful to the monetary policy.
There is no detail on how the resources will be provided as a result of the initiative of the Central Bank, but organizers have resorted to printing money, or use up or loosen monetary policy volumes, resulting in the loss of essential elements used in the fight against inflation, and for every undesirable consequences, notably weak purchasing power and exchange rate weakness.
The Central Bank should not lose its ability to protect the exchange rate and domestic price stability. Therefore there is a need for coordination between monetary and fiscal policy. For these recent policy must reduce the deficit considerably so you must steep austerity budget. Borrowing may be necessary, but most importantly is the ability to borrow shot, taking into consideration new circumstances in Iraq.