What does it mean reducing the value of the Iraqi dinar to you? 1/4/2016
What does it mean reducing the value of the Iraqi dinar to you?
1/4/2016 0 Comments
Announcement of the decision to reduce the value of the local currency compared to foreign currencies in industrialized countries when it comes planned economic feels the need to boost economic development, or when they feel that the economy is weak and needs a booster injection. Reducing the value of local currency encourages exports and reduce the volume of imports and thus raise the economic growth (an increase in national production) and may increase inflation (price increase rate) in the country if they are too large exports.
Inflation source may result from three sources:
• increase in the price imported goods, especially in the prices of raw materials (inflation due to increased production costs).
• increase the overall demand for goods and services due to the recovery of the export sector (inflation due to increased purchases of individuals).
• Because of the low export prices, the employer becomes not care very much about the cost of production to become more productivity, and so on, and over time it may rise Osar its products.
It remains to be high in an uncertain export volume even with the reduction in value of local currency the following for the reasons:
• elasticity of demand for exports and imports, if export demand does not change, the decline in their prices in foreign markets will not lead to an increase in the production of exported goods and will not greatly affect the balance of payments. On the whole if the elasticity of demand for imports and exports of more than 1, the reduction in value of local currency improves the balance of payments.
• state of the global economy, if the global economy is suffering from the recession, lower in local currency may not result in the desired purpose, but in the economic boom phase may lead to a rise in exports and could lead to increased inflation in the country.
Inflation size as a result of reducing the value of local currency will depend on:
• the production capacity size in the country. If the country uses half of its production capacity due to the economic recession, the increase in exports will not greatly affect the inflation rate.
• the success or failure of the owners of production in the consumer cost of production load. For example, the product's decision to reduce its share of the profits will not lead to higher commodity prices, but the insistence of producers to raise their profits will leads to an increase in the inflation rate in the country.
• If the trade unions decided not to demand higher wages, because the raw materials are not the only material used in production, but includes work as well, and in some cases the contribution of work in the creation of production outweigh the share of raw materials and so the demand of the workers lift their wages will lead to a rise in prices and the rate of inflation while Scott this layer may leads to stability in the rate of inflation.
What is the effect of the decision the central bank to reduce the value of the Iraqi dinar against the US dollar? Before answering to this question, we should know the status of the Iraqi economy. Iraqi economy prevented entering 2016 suffers from a severe Akhvad in oil revenues, obligations to pay salaries and wages and social aid and pension and aid for the displaced, including no less than eight million citizens, and the agricultural sector and industry do not represent more than 15% of national production. In other words, Iraq needs funds to cover the operating budget and needs money to buy what it needs from the goods and services do not exist in the country, dependence on imports.
Devaluation of the Iraqi dinar, the source will not benefit because there is no export to Iraq, a private industry. The measure could lead to a reduction in the value of imports because it would be higher prices within the country, which may cause an improvement in the balance of payments and an improvement in the gross domestic production figures. But all this depends on the elasticity of demand for imports, if the import is inelastic, the devaluation of the dinar will not lead to the desired goals and could lead to a general increase in prices, because most of the goods in the Iraqi market foreign-made.
I do not think that the reduction in the value of the Iraqi dinar will achieve What aspiring him a member of the parliamentary finance committee Majida al-Tamimi, which came in her statement that the action of the Central Bank "is one of the alternatives for external borrowing, and produces state insurance employees' salaries and control the size of the spending, and thus reduce the fiscal deficit" because the reduction of teams is not enough obligations of the State towards employees, it will not be a substitute for external borrowing. The state can not finance them dues without external borrowing and that as long as oil prices in global markets have not improved. Ms. Tamimi political statement more than economical. It was Prime Minister for Economic Affairs, Mr. adviser permit the appearance of Mohammed Saleh more realistic to justify the decision to reduce the dinar when he said that "the decision to reduce the value of the dinar is part of the protectionist policies taken at the financial level, but must be accompanied by measures relating to the availability of active industry with the rise in the pace of production ornaments, a substitute for the importer and meets the need of the domestic market ".
• The first beneficiary of the decision is the Iraqi source.
• beneficiary will also be Iraqi product with all sorts of goods and services
• As long as that national production in the first phase, the impact of the decision will not lead to the desired economic development .
• the decision will encourage travel to Iraq and discourage travel abroad.
• likely increase in the inflation rate in the country is striking.
• the decision could lead to a cessation of foreign currency smuggling.
• the decision could lead to a halt smuggling gold out of the country.
• decision will increase the Financial government burdens when deserve Foreign upon debt, because the debt is not in the local currency, but Alajunbh currency.
• may improve the balance of payments if the import of goods and services size fell.
• the decision will not negate the need for Iraq to additional loans to pay its financial obligations.
• the decision will hurt the chip retired and living outside Iraq
• the decision will hurt the planned sale of his estates and leave outside the country.
• the decision will hurt the profits of the foreign investor in Iraq.
• the decision could lead to a decline in living standards for the Iraqi people (because of inflation).