Euphrates Center discusses the exchange rate stability in Iraq, a pillar or a waste of dollars

From Ross on FB
Under the Iraqi monetary policy is balanced and the size of the economic challenges created by low oil prices and the level of security threats and the premise of repairing Iraqi cities and towns destroyed, deliberately Euphrates Center for Development and Strategic Studies, to set up a monthly discussion circle under the title: Management of the exchange rate in Iraq: pillar of stability or a waste of dollars , in the hall of affection and prosperity Association and the presence of a group of academics and researchers in research and studies centers, economists and those interested in Iraqi affairs and a number of journalists and media professionals.
The seminar was opened by Dr. Haider Al Tohme Chairman of the Economic Studies Department at the center of the Euphrates with an introduction in which he said: "The central bank has succeeded in the past years in achieving relative stability in price levels, across different types of demand for the dollar feed, the question before the (2014) a meaning while the oil dollar flows profusely, how to fit economic policy between the demand of the welfare Lalani goal of cheap consumer imports in particular, and the goal of a production base of Iraq's economy outside the crude oil build post (2014), and while oil revenues dried up and fell central bank reserves horribly emerged at the forefront of the scene least Tsada another question, how long the central bank will continue to drain foreign exchange reserves, in light of the scarcity of the dollar on the one hand and suspicions of corruption surrounding the auction of foreign currency on the other hand, and the implications for the Iraqi economy. "
In the context of that hosted the Euphrates Center expert Monetary Prof. Dr. Abdul Hussein Ghalibi to discuss through this recent experience to manage the exchange rate in Iraq and what are the most necessary to anticipate the next financial crisis policies.
Where he stressed: "The issue of foreign exchange policy in Iraq is a thorny and complex subject, one of the policies that can be prepared by economists, and in order to treat this matter in this brief period must turn a blind eye to many of the theoretical aspects, and therefore must focus on the objective:
Thread I / auction currency and its relationship to the exchange rate
Thread the other / choose the appropriate exchange rate regime for the Iraqi economy.
Currency and its relationship to the auction exchange rate
First, must agree on the principle or standard definition exchange rate there is more than one definition, there are those who see the exchange rate (as a number of units of local currency equivalent to or equal to one unit of foreign currency), and from there he sees vice versa (a number of units of foreign exchange equivalent to one unit of the local currency), but the prevailing common in all countries of the world is the first definition, meaning that he inverted the exchange rate. If we increased the exchange rate means that the value of the currency has fallen, while the second definition is used in the British and some countries and there are other types of price exchange such as the nominal exchange rate and there is the secret of real exchange rate, which is a Mqa Resonance between the goods and the price level, there is the effective exchange rate, what concerns us is the nominal exchange rate, which has the importance of the many points including:
1. The exchange rate linking the local economy and the global economy
As long as each country. If a particular currency when trading or when trade or financial exchange between any country, must exchange rate to complete transactions,
2. The exchange rate can restore or affect the distribution of income in the event of devaluation or revaluation of the exchange rate will encourage exports and the most accurate sense is to encourage the export of perishable goods, and that means raising the entry of those who work in this sector leads to an increased level of consumption.
3. The exchange rate has an impact on resource allocation here means that the resources if the state reduced its currency and raised the foreign exchange rate, the supplier is moving towards viable export sectors and withdraw goods. "
He added Ghalibi: "The foreign exchange rate has a policy overlaps with the policy, cash in the developed state is usually the policy of exchange rate policy is working alongside monetary policy, but in developing countries, the exchange rate policy is part of monetary policy Why, because in developed countries there are markets field financial and trading in securities, sings the central bank compensates its monetary policy for dealing in foreign currencies, but in developing countries, especially like the Iraqi economy economies there are no capital markets, the central bank is forced to use foreign currency to control liquidity levels offer cash , Through the sale and purchase of foreign currencies to balance its monetary policy, it can be through this relationship to be the exchange rate of three roles:
First floor / can be the exchange rate as an instrument of monetary policy instruments and this is what is happening in Iraq, especially as we are in monetary policy we have known tools which are the interest rate and the re-discount legal reserve and open market, these tools use weak in Iraq so invoked to auction It is similar to the open currency market.
The second round / could be the exchange rate as an intermediary target by addressing the problem of the balance of payments, now we have the problem of the general budget can be used as the exchange rate as an intermediate target to address the budget deficit.
The third round / can also be a final goal in itself, through the use of the money supply to address the exchange rate or the use of revenues or income or use the interest rate to control the exchange rate.
Auction currency: It is one of the tools used by the central bank after a year (2003), similar to the subject of the existing facilities, which are divided into lending and facilities of deposit facilities, foreign currency auction is a very suitable tool and not Iraq unit uses this method, but there are Turkey and the Gulf states of India and the law Iraqi reality select a set of goals for the auction currency, but the most common is to satisfy the domestic demand of the dollar as well as meet the requirements of the imports of Iraqi society as well as to satisfy the needs of savings, both within the community or leaking out of the country.
As for the mechanism of the work of the currency auction will open the auction continuously during working days and submit applications by the banks or by the banking companies either independently or through some banks, and open these tenders by the Committee of the Central Bank usually this committee made up of a group of general directors, who are responsible and this committee will either agree to the requests or reject them and usually be approved, but if the requests were very large split either applications that refuse normally where violations of law, or the lack of the necessary conditions or may be to buy items unwanted It rejects such requests.
The central bank under this mechanism where he worked since (2004) and to the present time, this mechanism has provided a lot of demand accounted for (75%) of the auction currency of the year (2004 to 2015) went to the private sector trade, while the rest (25%) to meet domestic demand and domestic demand-going abroad, either for the price central bank was able to control the exchange rate prices since (2004 to 2009), up to (1170) and lasted from (2009 to 2011) on the same price , thus lowering the central bank to (1166) of the year (2012 to 2015), then returned and raised again to 1182 from (12 months in 2015 until the beginning of 2017), and since the beginning of this year, and so far the Present bank sells at a price (1184) dinars to the dollar.
This stability indicates us that the period leading up to (2014) was necessary for the Iraqi economy installation, because there was an abundance of resources and the kind of stability do not wear it but after 2014 generated our problems, if the central bank was working on stabilizing the exchange rate and this in accordance with the installed price criteria exchange acceptable, therefore here ask whether the auction is necessary or not necessary, the auction is a government supplying the Iraqi dinar and the government is the monopoly of the dollar, especially as the input of the dollar by (100%) are from the government, if the Iraqi government acquires all foreign currency entering the economy Iraqi, can dispense with the Iraqi government For the dinar can not be, if either the government is working to sell the dollar directly or trust in the central bank to sell the dollar and this is what happened.
The question of cancellation of the auction can not be where you can not provide the government denarius outside the auction. If monopolized the government dollar began to give salaries in dollars turned into cash trading dollar process that means cancellation of the local currency and enter into big problems, so the government can not deal in dollars and can also sell the dollar so it was the agreement in this direction is a true agreement,.
Are there problems and that the real problem haunt the auction answer is yes is the fact that the real and actual importer gets the dollar market parallel price, the government sells the dollar to the central bank at the official rate and the central bank sells the dollar to banks that enter the auction at a reduced price and here the problem lies in the difference between Bank price and the market price, and this problem needs to be addressed through the sale is in government banks goes this difference to the budget, but what is happening in the central bank may be aimed at encouraging private banks and the private sector so involve them in the auction, and this process needs to Tt Ware.
Choose the appropriate exchange rate regime for the Iraqi economy
Is that a fixed exchange rate or stable now suitable for the Iraqi economy or not?
There are multiple systems exchange rate, there is a currency board, an ancient method was used in the thirties of the last century in Iraq, and there is a fixed exchange rate, there is a linkage creeping flotation orbit and the free float, and these totals can be divided into three categories, namely:
Cancel currency category
The category of fixed arrangements
The category of flexible arrangements
We have a group in the economics of the exchange rate which is a group of foundations, if the economy is stable and regales state of stability there is a criteria that can be relied upon in the selection of the drainage system and these standards can be simulated under normal circumstances, but after a year (2014) there we have a problem which crosses reported double shock as able to terrorist groups from the occupation of large parts of the country this side not to mention the shock of oil prices, will resort to normal criteria for the selection of the drainage system under the shock answer is no, there are other way is to choose the drainage system under the shock exists we have, in with monetary shock b Possible recourse to the fixed exchange rate, but if the economy is exposed to real shocks can not survive on a fixed exchange rate, what is the real shock:
First: shocks working on GDP volatility
Second, the country engaged in a war against these gangs and this war requires an expansionary fiscal policy Anfakih to feed the war
So the Iraqi economy since mid-2014 until the present time is exposed to real internal and external major shocks, in light of the real shocks must move toward flexible exchange rate, but the problem is that the Central Bank of Iraq must be the editor of the Iraqi economy responds quickly and the central bank to leave the exchange rate hard and move toward flexible exchange rate, this rapid move is also not acceptable but moves through exchange creeping price, abideth price period there is a bump that up to exchange orbit and near the price to flex or free, what are the advantages that you will get it ...?
First, to maintain foreign reserves at the Central Bank
Second, expand the effectiveness of monetary policy
Third, raise the exchange rate or currency devaluation will contribute to the budget, add to this that a lot of imports that can be introduced to Iraq are recreational goods, can be dispensed through the devaluation of the currency and raise the exchange rate automatically will abandon them traders when they do not see it as profitable.
Fourth, enhance the competitiveness of exports
Fifth: Addressing external shocks
Sixth: to get rid of speculation
Seventh: The cancellation of pluralism, there are two prices for a formal exchange and parallel
Eighth: Investment Promotion
Ninth: The rationalization of consumption In addition, inflation is a tax and as long as the state now can not collect the tax because of problems related to the tax device can get the tax by way of another.
X. / revitalization of small and medium-sized enterprises of all kinds and even large
Interventions:
- Prof. Dr. Tawfiq Abbas Abdul Aoun "asks why focus on the auction with other means for monetary policy and whether the auction actually succeeded, especially since Statistics says that one-third of the auction go to other ports, and not to import, the other thing is that the issue of dealing in dollars Are there there statistics focus on this sense, the third question for currency devaluation resulting in essentially two effects following the inside and the impact of prices and in order to succeed will be encouraged some export industries and industries Indemnified import, are our industries able to compete? ".
- Prof. Dr. Rahim al-Shara Faculty of Management and Economics University of Karbala, "finds that the paper was not exposed to the negative answer is to raise the exchange rate and what is the position of low income and the poverty rate in the case of the growing level of inflation and what is the government's position of these social strata."
- Sheikh Morteza pension chairman of the news Foundation for Culture and Media Management "indicates that the argument in favor of the idea, especially since the idea is harmful to the poor class, and as a result that the policy in the economies of the volatile Iraqi such as the economy and Egypt will not lead to the results of the process, especially since most of the economies that operate on floating flotation facing major economic crises such as Turkey, Egypt and Iran, Valtaoam did not address the problem, but in depth, especially since the Egyptian experience the best witness social Valhraih has become the most affected, my question is how much can this policy resist in light of the decline in oil prices? the other question is floating in Iraq encourages On production as the stability of the exchange rate in Iraq encourages consumption, assuming that the flotation encourages the production as it imposes on the Iraqi citizen to work and moves if either a fixed exchange rate shall be assured? ".
- Dr. Khaled Aerada Director of the Euphrates Center for Development and Strategic Studies finds: "The economists Iraqis close to the decision-making is always defending political monetary government through the exchange rate, is the problem is that those associated with political agendas and thus they abandoned the logical rules for the management or crisis No, cash is a special case and that the issue of an integrated political floating or non-floating linked to other conditions, and therefore a decision if you will go for the option of the same policy followed by the current central bank maker. "
- Ali Hussein Obeid story writer and author of the news organization "inquires about the secret of falling foreign exchange reserves, the other thing the feasibility of the daily supply dollar in the auction compared with what enters Iraq money?".
- Adnan Salhi, Director of the Future Center for Strategic Studies "believes that the issue of the Central Bank of damage uncertainty for years and years, most of the changes affecting the head of the pyramid's central bank was assigned to figures inefficient, as if the political horizon may grind the central bank in the aspect, my question here Are interventions political had a prominent impact on the movement and the policy of the Central Bank, and whether. Foreign loans to the Central Bank of the opinion or impose it "
- Hamid Abdul Hussein, a researcher at the center of the Euphrates "believes that the Iraqi production device device is flexible. If we work to reduce the exchange rate, you will turn this device into a flexible production and there is increasing the economy and increasing exports."
- Dr. Firas Hussein Ali Saffar, head of Crisis Management at the Center for Strategic Studies / University of Karbala asks: "When the exchange rate is perfect Add to that there is not a set of exchange rates, either with regard to the exchange rate, Iraq was able to succeed along the last period because the Iraqi reality is not likely a lot of shocks that may first affect the poor social strata, it is a question you can invest in cash reserves or is not permissible. "
- Ihab Ali teaching and writer in the news network information "ask that the Iraqi situation close to the likeness of the Lebanese economic reality but Lebanon does not suffer from the same problems that plagued Iraq, the next point that fixed exchange rates are always related to rentier states tries to prove to the exchange rate in order to raise the purchasing power of its currency. "
- Dr. Hussain Ahmed Sarhan Chairman of the International Studies Department at the Center for Strategic Studies / University of Karbala and the President of the Human Rights Department at the center of the Euphrates Development and Strategic Studies "begs the question, if we have reduced the difference between the nominal price and the real price towards raising the nominal price even underestimate the budget deficit How guarantee that the real price will not rise, the second question is whether the central bank insists on the policy of that because there are influential parties are run in secret, the other question is whether the goods that enter the Iraqi equivalent to the value of what is being sold in the auction currency a day or that there are lists of fake? ".
- Ahmed Javed, director of Adam Center for Defending Rights and Freedoms "believes that the Iraqi economic reality monetary and political treatment need to be visionary and comprehensive study of the surrounding social and Iraqi economic reality, especially the effects of economic imbalances that affect the social strata, especially the circumstances and that Iraq does not suffer from lack of resources, and corruption is a major disaster that weighed upon Iraq, especially in the field of banks and currency auction, and therefore, the citizen will affect the exchange rate in addition to other crises suffered by. "
- Mr. Hashim Al Shammari from the Faculty of Management and Economics / University of Karbala, believes that "the Central Bank of Iraq is an independent physically and therefore is unable to take independent decision in the liberalization of the exchange rate, either for the exchange rate regime is a constant and fixed adjustable, either with regard to the unity of measurement is not It has to do with the value of the currency. "
- Prof. Dr. Kamel Allawi, from the College of Management and Economics / University of Kufa "recommends the need to be baptized into floater and creeping exchange rate. In the case of resorting to this mechanism is there a need for the survival of the auction, or there will be a window to sell the currency to walk trade at the official rate, on the other side and under the current data of the Central Bank and the development of the country's economic is it possible to go to the floating exchange rate, note that the auction is the mechanism developed, how has been resorted to, the continued existence of the auction yield of a problem with a walk private sector, and thus the corruption that exists in the auction currency is the lesion. If the eliminated through the use of To credits and tight control are also the advantages of the exchange rate movement is the question of the general budget, and the issue of inflation was used as a mechanism of economic growth mechanisms but should be used with caution. "
Comment on interventions
Mr. lecturer responds to all inquiries progressively starting it does not support real free float but calls over the exchange rate closer to the flexible, Vhvaza on the rest of the reserves Nguenn from the use of reserves to give a simple exchange rate move, there dollarization exists, but it is a partial course , and we are not in a stable economy, but in a war economy.
Besides If we continue to defend the exchange rate we will reach a catastrophic situation Noam exchange exchange and accept every problem but now the existence of reserves, we can work on a flexible exchange the best price, and there is also a lot of methods such as the use of subsidies to compensate for inflation, the other thing that the flotation is not production very significantly encourages and even encouraged to some extent, also said the central bank is linked to agreement with the international Monetary Fund and the World Bank, which has limited freedom and not full to keep the exchange rate, in addition to the central bank's management is very clear and not blurry.
As for the policy are interfering in every aspect of the lives of the Iraqi economy, either with regard to the ideal exchange rate it which meet supply and demand for foreign exchange, Lebanon has no problem considering that tourism is the main supplier of foreign exchange and distributed but in Iraq foreign exchange resource acquires the state, the interest rate speculators now plays the lending and deposit now therefore in the local currency interest rate differs from the lending and deposit in foreign currency and these (25%) of the remaining demand caused by the interest rate that the central bank completely neglected. "


https://annabaa.org/arabic/economicreports/11599