Raise the price of the Iraqi dinar to the fore again
Raise the price of the Iraqi dinar to the fore again
Version: paper - International
Monday, February 20, 2017 (00: 0 - GMT)
Some Iraqi economist calls for the government to lift the Iraqi dinar exchange rate against the dollar until the rising purchasing power and increasing confidence it represents the sovereignty of Iraq, and calling for the need to stop the «dollarization» economy by preventing the deal internally by making local transactions are limited to the use of the Iraqi dinar only.
It must be pointed out that 70 percent of the currency in circulation was covered in gold and foreign currencies until 1981, and the remaining bonds Iraqi government (currency) Act, and Iraq was then applied to the remnants of the gold standard system. In order to maintain the cover, successive governments have continued to link fiscal policy, especially current spending and investment, the status of the balance of payments, and the latter was determined by the government's revenue from oil exports. But the success of this linkage administrative restrictions applied to the outside, both the conversion, trade in goods, services and movement of capital. Thus followed the monetary and fiscal policies the province has maintained the stability of the Iraqi dinar is installed by the Central Bank of $ 3.2 dinar.
And it gave a commitment to cover the dinar ease monetary authority in the exercise of its duties, where he was only concerned with maintaining the stability of the currency, but that check on economic development that have not been spending the expense of the adequacy of fear that increased spending affect the stability of the currency. But during the Iraq war - Iran that caused Ptlashi Iraq precautions huge foreign currency, the Iraqi government abandoned the currency law and began to spend on the war without quantitative restrictions, causing a continuous decline in the dinar exchange rate against the dollar and other major foreign currencies, because of the increasing gap between the Iraqi currency supply and demand.
And increased the economic embargo imposed on Iraq in 1991 it worse. Despite holding the government at official exchange rate (US $ 3.2) for official transactions, resulting from the continuation of the growing imbalance between the currency volume in circulation and demand for another rate of the dinar is the parallel market rate or the black market, we arrived at certain times to 4000 dinars to the dollar.
After the occupation of Iraq in 2003, and lift the ban on oil exports and reserves of foreign currency deposits abroad and the resort's central bank to regulate the daily auctions to sell the dollar, which means the withdrawal of part of the local currency, the value of the Iraqi dinar to rise began gradually until it reached 1200 dinars to the dollar, and remained range around this average. And deprived the Iraqi - Iranian war conditions and the economic blockade after the Iraqi dinar many regarded as a store of value and medium of circulation, what caused the shift most transactions at home and especially internal trade in goods and services, to the dollar, and thus has «dollarization» of the Iraqi economy.
From this background on how the Iraqi dinar exchange rate over the last 36 years the price of change, and how it has «dollarization» economy, it is time to discuss the claims of some economists now demanding higher when the dinar exchange rate and stop «dollarization».
Since more than four years and officials in Iraq are talking about a project monetary reform in which to raise the Iraqi currency exchange rate against the dollar so that the new dinar equals 1.2 dinars to the dollar instead of 1200. But the move was postponed to a later date due to the exit of some Iraqi areas under government control after the occupation of «Daesh» her. Then the military operations began to recover these areas which still exist.
The government is expected to return to the project itself after the end of military operations. If the monetary reform is successful, there will no longer need to use the US dollar in local transactions. The latter earned after the completion of daily transactions difficult with the arrival of the dollar value of one thousand dinars to become, making individuals resort to dealing in dollars instead of the dinar, especially in large transactions in the hoarding of currency. So can not be canceled «dollarization» Iraqi economy administrative decision or administrative orders of the monetary authority, but will be gone phenomenon gradual demise of the reasons that led to it, that is, after the above are monetary reform referred to, because the dinar will then mode for easy handling and a store of value obviates the use of the dollar.
But monetary reform as mentioned above does not mean setting a new official exchange rate of the dinar against the dollar. If under the floating exchange rate as it is currently, the rise or fall according to the relationship between the width of the dinar and demand, the higher the stability of the dinar against the display or low demand, price declines cashed in against the dollar. And it gets the contrary, if the width of the dinar fell against the stability or rising demand. The monetary authority may resort to the installation of the new exchange to the dollar or to a basket of currencies. But in any case, is not advisable to adopt a high exchange rate, it does not give effect to the economy or raise the value of national sovereignty, as some believe, but have negative effects in the economy. The price of the Iraqi dinar former (US $ 3.2) was exaggerated and will continue to be overrated if has to return to it in the future. It will make imports cheaper, but it hinders improvement of production and export capacity of Iraq, may be the price of 1.2 dinars to the dollar or dinar against the dollar is a good price. But on the government to follow the fiscal and monetary policies that help to maintain it. So we can say that the calls that we hear today the lifting of the dinar exchange rate and the abolition of «dollarization» claims the economy is not right for your first or can not be achieved by the monetary reform for the second.