The strength of the Iraqi dinar between the central bank and the Iraqi economy
To begin with, we must bear in mind that the strength and weakness of the currency do not always express the true strength and weakness of the economy, as the strength and weakness of the economy express the real strength and weakness of the dinar.
The currency may be strong, but it does not express the strength of the economy, meaning the economy may be weak; As in the case of Kuwait, and on the other hand, the economy may be strong, but the currency is weak, as in the case of China. Here, the weakness of the currency stems from the strength of the economy and not from its weakness, as will be shown below.
The Kuwaiti dinar is the strongest currency among the world’s currencies, as it is worth more than 3 dollars, but does the strength of the dinar express the strength of the Kuwaiti economy ?! Most of the economic indicators point to the weakness of the Kuwaiti economy, due to its excessive dependence on oil, which has become the main engine of the Kuwaiti economy.
As oil accounted for more than 48% of the GDP, more than 89% [i] of public revenues and grants in 2018, and more than 89% of commodity exports in 2017 [ii]. These ratios indicate the reliance of the Kuwaiti economy mainly on oil, which made it a weak economy because dependence on oil in the main makes the economy unstable and volatile and cannot meet the local demand, so it becomes subordinate and mortgaged to the outside world and lacks economic sustainability, and the currency is strong due to oil dollars not by the strength of the real economy Therefore, currency strength does not always express the strength of the economy.
The weakening of the Chinese yuan and the strength of the economy
On the other hand, we find the Chinese currency weak, being equivalent to 0.14 US dollars, or 14 cents of a dollar. Does this weakness of the Chinese currency reflect the weakness of the Chinese economy ?! Of course not, as the Chinese economy is at present one of the emerging economies and competes with the largest economy in the world, which is the US economy and deservedly.
At a time when the gross domestic product of the US economy reaches 21 trillion, the GDP of the Chinese economy reaches 14 trillion dollars in the year 2019 [3]. The accelerated Chinese growth, which will result in the Chinese output exceeding the threshold of 55 trillion US dollars in 2050, while the US output will not exceed 35 trillion dollars for the same year. Is an economy of this magnitude expressed in a real weak currency? !!
The weakness of the Chinese currency did not express the weakness of the economy as much as it expresses its strength, as the Chinese economy has a large workforce that is reflected in low wages and lower prices for its products, in addition to the state’s control of the currency’s value to make it more suitable for foreigners. Chinese exports have increased and the importance of the Chinese economy as a whole has become It is of great importance in the global economy.
The strength and weakness of the currency do not always and truly express the strength and weakness of the economy as much as the strength and weakness of the economy always and truly express the strength and weakness of the currency.
The Iraqi dinar between the Central Bank and the Iraqi economy
Is the strength of the Iraqi dinar stemming from the reality of the Iraqi economy or from the Central Bank of Iraq? If we look at the real economic reality, we will find that the value of the Iraqi dinar is much lower than this value had it not been for the intervention of the Central Bank of Iraq through the currency window, regardless of the doubts that were raised around.
As the Iraqi economy is a weak economy by virtue of its dependence on oil mainly and its lack of economic diversification, as oil constitutes more than 45% of the output, more than 90% of public revenues, and more than 99% of commodity exports, this dependence has led to the neglect of other economic sectors. Finally, this means the absence of economic diversification.
Oscillation and dependency
At the time when the first, dependence on oil, To the fluctuation of the Iraqi economy by virtue of the association of most economic variables with fluctuating oil in its prices, the second led to the absence of economic diversification; To the economic dependence in order to cover most of the local demand from the global economy, which means that the strength of the Iraqi dinar was not stemming from the Iraqi economy because the economy is weak in the first place, so the question arises, what made the Iraqi dinar strong while suffering from a weak economy?
The central bank supports the Iraqi Dinar
The strength of the Iraqi dinar stemmed from the intervention of the central bank through the currency window, where the central bank entered as a seller of the US dollar and a buyer of the Iraqi dinar, which means reducing the demand for the dollar in exchange for an increase in the demand for the dinar, this process led to an increase in the strength of the Iraqi dinar, or at the very least Preserving the value of the dinar from depreciating, according to what was stated in the white paper, p.20.
Where the Central Bank follows this mechanism by virtue of being the only body that has its vision, management and independence and is responsible for preserving the value of the currency and takes what it deems appropriate to achieve this goal, so it resorted to foreign reserves, of which the dollar constitutes the largest part of it, in order to support the Iraqi dinar and this is what happened The ground already.
The strength of the Dinar is not real
As a result of the stifling financial crisis that Iraq has been exposed to due to the decline in oil revenues, which represent the backbone of public finances and the Iraqi economy, and the latter’s dependence on the global economy to feed domestic demand that requires more dollars, and just some people proposed reducing the Iraqi dinar as an option to address the crisis and achieve part of stability. , The value of the dinar decreased directly against the rise in the value of the US dollar, which means that the strength of the dinar is not real, but rather artificial, as a result of the intervention of the Central Bank.
This means that the value of the Iraqi dinar was not derived from the strength of the real economy, but rather from the support of the Central Bank, which is a weak force that does not stand up to the economic statements that see devaluation as part of the solution!
The strength of the Dinar diversifies the economy
In order for the strength of the Iraqi dinar to be a real power that truly expresses the strength of the economy and withstands economic statements and international crises, work must be done to employ oil wealth in a way that contributes to diversifying the Iraqi economy because economic diversification means meeting local demand and exporting the surplus abroad, and both things lead To increase the foreign reserves of the dollar that support the Iraqi dinar, and thus the strength of the Iraqi dinar is a true expression of the strength of the Iraqi economy.