Reduce the Iraqi dinar exchange rate … punish people!!
Iraq is going through extremely sensitive conditions, as the Iraqi economy faces a real challenge after the catastrophic failure to find alternatives to selling crude oil. I confirm here the sale of crude oil and not the oil refining industry and the petrochemical industry.
Iraq is one of the largest oil reserves in the world, as it has 147.2 billion Barrel according to explorations in 2018, or 8.5% of the balance’s global reserves – – and yet he annually imports 3.3 trillion Iraqi dinars in oil products – the annual report of importing Iraq 2018, the Central Statistical Organization 2019 – and he imports energy worth 7 trillion Iraqi dinars – the 2019 budget Iraqi facts: Issue 4529 on 11/11/2019 – all of which can be produced in Iraq, as well as other resources such as agriculture, various industries, trade, tourism, etc.,
With no Sovereign Wealth Fund that provides additional imports and a portfolio to protect the future of generations, especially in times of crisis, Iraq today Asking for aid to pay the salaries of employees and retirees is that what enters the treasury is not equal to a quarter of what Iraq needs to cover salaries only.
The financial budget for the year 2019 was allocated to the salaries of retired civilians and the military (9,316,652,417,000) Iraqi dinars, and the salaries of employees equal (43,404,629,267,000) Iraqi dinars For the year 2019, the amount is (52,721,281,684,000) Iraqi dinars, which means that Iraq needs monthly (4,393,440,140,000) Iraqi dinars, and if we take into consideration that the Iraqi dinar exchange is 1,200 dinars per dollar, it means that Iraq needs monthly to (3,660,000,000) approximately one dollar, while the GDP of Iraq is approximately (1,100,000,000) dollars for the month of March and (1,200,000,000) dollars approximately for the coming months, as Iraq needs (2.5) billion dollars approximately per month to cover monthly salary expenses only, this is regardless of other needs,
And to address This catastrophic failure began to raise some voices in order to reduce the Iraqi dinar exchange rate against the US dollar in order to increase the budget number and reduce the deficit in it, and I find it necessary to clarify some of the terms, so the reader may be surprised by the ignorance of many of those who speak in this field, and perhaps they are among those in important positions of responsibility.
(1) Floating Exchange Rate:
A floating currency is the rate of currency that has floated so that it has become fully liberalized, so the government or the central bank does not interfere in determining it directly, but it is automatically generated in the currency market through the Supply And Demand mechanism that allows By setting the exchange rate of the national currency against foreign currencies, this term corresponds to the fixed price of the currency exchange
(2) Fixed Exchange Rate:
A specific price will be set against a major global currency (usually the US dollar, but also other major currencies such as the euro, yen, or basket of currencies), in order to maintain On the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market for the currency in which it is linked.
(3) Devaluation:
is the devaluation of the official exchange rate of this currency against an international reference currency (the US dollar or the euro, for example), so that the number of units of foreign currency that can be obtained against one unit of the national currency is low, and it is correct to talk about devaluation when it is The exchange rate is subject to the direct management of the government or the central bank, which determines this price through a government decision,
(4) and according to the same logic, it is possible to talk about raising the price of the currency Revaluation in exchange for reducing it, and this is when the exchange rate is subject to the direct management of the government or the central bank as well, and we note that the reduction The price of the currency and its elevation are within one framework which is the fixed exchange of the currency,
(5) but when the exchange rate is subject to the forces of supply and demand (floating the currency) and there is a decline in the value of this currency, depreciation of the currency, the decline is an automatic result of the free interaction between supply and demand in the foreign exchange market without interference Direct from the government or the central bank, according to For the same logic, we can talk about the rise in the value of the currency Appreciation versus its decline, and we note that the rise and fall of the currency price within the currency float.
(6) Since Iraq works within the fixed fixed rate system, we can talk about reducing and raising the exchange rate of the currency, and here I do not want to differentiate between the two systems, each of them has its conditions despite the market economy and its idea that the state should not interfere in economic activities and let the market control itself
It operates a system of floating the currency and its price depends on the iron principle of supply and demand, but the actual conditions of Iraq do not allow for reasons that are too long to be explained.
Countries with a fixed exchange rate resort to reducing the currency exchange rate for economic reasons to improve their balance of trade mainly due to an increase in domestic production versus the importer. The currency reduction makes the difference between the outside and the inside and reduces the importer in front of the exporter, and this assumes that there is internal production It covers the local need and wants to preserve it and export it abroad, but in the Iraqi case, unfortunately, there is no industry, no agriculture, no internal production, it covers the local need as well as being an exporter, as Iraq has nothing to export other than Crude Oil, and I speak here As for the reality of what is there and not what I am calling for, the total imports for the year 2018 for commodities and petroleum products amounted to (37) billion dollars, equivalent to (43.8) trillion Iraqi dinars, and the total imports for the year 2018 for the non-oil commodities (34.1 dollars), i.e. Equivalent (40.5) One trillion Iraqi dinars, and
(7) Iraq has no need to reduce the exchange rate, but it is sufficient for it to prevent the import of any material that can be dispensed with.
(8) BIG ONE …. PAY ATTENTION TO THIS ONE!!!
As for the real effect of the devaluation, it is the direct punishment for the Iraqi people, if we know that 6 million Iraqis receive a salary or aid from the Iraqi government and the number of individuals The Iraqi family is 5 people, we are talking about about 30 million Iraqis who live on what they receive from salaries or aid from the Iraqi government, all of these will be affected by this procedure, because inflation occurs.
(9) Inflation in prices is due to the low purchasing power of the Iraqi dinar, so the family that could have lived in a million dinars An Iraqi after the currency devaluation has become worth 500 thousand dinars, and if she receives a number that is a million, therefore she will live in great distress due to this reduction,
(10) the other affected are the owners of internal debts in the local currency, which amount to about 40 trillion dinars, which represent treasury transfers and debits with banks The government and the central bank for companies, contractors, and merchants, and if they are a number, it will remain that the Iraqi government owes them to 40 trillion, but after the devaluation they will owe 20 trillion on the assumption that it has been cut in half.
(11) As for the external debtor, it remains the same because in foreign currency the dollar or the like.
Another issue remains here is the confidence of investors and companies in the currency after the devaluation is much less because the stability of the currency is one of the factors that encourage investment and entry in projects as well as problems related to economic feasibility after the devaluation, which is the basis of the intervention of the government or the central bank in fixing the exchange rate or only for work The principle of floating currency from the beginning.
(12) ANOTHER “BIG ONE”
Hence, we believe that those who seek to actually depreciate the currency are punishing the Iraqi people because of the wrong policies and economic failure that brought the country to this situation, as the people in this bear the mistakes of politicians and are punished instead of them.
Al-iraqinews.com
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