Economists: Floating the local currency leads to the collapse of the Iraqi dinar

[size=52]Economists: Floating the local currency leads to the collapse of the Iraqi dinar[/size]

[size=45]Baghdad / Rami Al-Salihi[/size]
[size=45]Recently, there have been statements regarding the existence of efforts by the Central Bank to float the local currency in Iraq. These statements have angered the Iraqi street for fear of another rise in the markets, while the Central Bank has not commented on these statements by denial or confirmation so far.[/size]
[size=45]The process of floating the currency means making the exchange rate of this currency completely liberalized, as the government or the central bank does not interfere in determining it directly, but rather it is automatically secreted in the currency market through the supply and demand mechanism that allows determining the exchange rate of the national currency against foreign currencies.[/size]
[size=45]Iraq is economically powerless[/size]
[size=45]In this regard, the economic expert, Abdul Rahman Al-Mashhadani, said in an interview with (Al-Mada), that “the flotation of the local currency in Iraq has not been presented so far officially, whether in the Central Bank or with the relevant authorities,” noting at the same time that “what is It is presented on social media and in the media that is news for electoral purposes.”[/size]
[size=45]And the economist adds, “Floating the currency is a failed step, given that raising the dollar’s ​​prices and reducing the value of the local dinar during the past few months did not achieve the required goals,” noting that “the realization of the flotation needs many conditions before starting it.”[/size]
[size=45]Al-Mashhadani explains, "Iraq lacks self-sufficiency at all levels, and the flotation needs long-term policies and plans," adding, "The current ground in the country is unable to contain such a step."[/size]
[size=45]The economic expert indicates that “the value of import in Iraq reached 95% of the total consumption, and the border crossings are not controlled, in addition to the lack of standardization of customs tariffs in them,” considering that “the steps of the Central Bank resulted in raising poverty rates in Iraq, which are wrong policies and harm the citizen.” Iraqi only.[/size]
[size=45]According to al-Mashhadani, the World Bank and the International Monetary Fund were not aware of the Central Bank of Iraq’s decision to reduce the value of the Iraqi dinar against the dollar, and they also considered that the decision was taken locally and tends to be more political than economic.[/size]
[size=45]Last December, the Central Bank reduced the exchange rate of the local currency (the dinar) against the dollar by 24 percent, with the aim of better managing payments and the economic crisis in the country.[/size]
[size=45]Government clarification of the harms of flotation[/size]
[size=45]On the other hand, the economic advisor to the Prime Minister, Mazhar Muhammad Salih, says, “The extreme rentierism of the Iraqi economy has led to the inflows into the country of foreign currency becoming one of the oil revenues, as it is a major sovereign resource for the state, which translates these returns into foreign currency, up to 66% of them into currency. Local (the central bank’s liabilities) in exchange for foreign exchange reserve assets, which are called currency cover with the monetary authority. According to Saleh’s statement to (Al-Mada), the one who undertakes the foreign currency offer is the Central Bank of Iraq itself through its window (the auction), while the market cannot satisfy its demand for foreign currency by 99% except from that window that the Central Bank holds to take over Exchanging the need for the dollar for the Iraqi dinar in order to control the levels of local liquidity and impose stability in the exchange rate.[/size]
[size=45]And he continues, "If the market is left to float, that is, to exercise supply and demand by himself without the intervention of the central bank window, he will notice that there is a very weak supply of foreign currency, which is a highly flexible supply that withdraws easily, offset by a large demand for foreign currency and low flexibility, that is, the demand for currency is mostly below any price."[/size]
[size=45]Saleh explains, “The mechanisms of supply and demand will lead to a deterioration in exchange rates to the point of hyperinflation that threatens the national economy,” noting that “the market equilibrium can only be achieved through the intervention of the central bank by selling in order for the market to restore its balance and stability? So what is the benefit of this flotation?[/size]
[size=45]In the latest report of the International Monetary Fund, the Iraqi economy is suffering from a contraction of 11 percent in 2020, which has exacerbated the economic weaknesses that it has suffered for a long time.[/size]
[size=45]The dollar is witnessing in Iraq these days a significant increase in prices, which caused the rise of all consumer goods in the local markets, according to observers.[/size]
[size=45]A clear deficit in the market[/size]
[size=45]The Iraqi markets are unable to receive the decision to float the currency if it is implemented, and the matter will lead to a major economic disaster in the country, this was confirmed by Saleh Al-Hamashi, an economist, in his speech to Al-Mada.[/size]
[size=45]Al-Hamashi spoke, saying, “There is no possibility of implementing such decisions by the Central Bank for many reasons, most notably the turbulent conditions of the country,” ruling out, at the same time, resorting to “this decision by the concerned authorities.”[/size]
[size=45]The economist says, "Iraq is a very consuming country, and therefore it is unable to float the currency, as it does not have any economic ingredients to help implement such decisions, such as market infrastructure and industry that cover the market need and others."[/size]
[size=45]Al-Hamashi added, “Floating the currency is a dangerous issue, which will lead to an endless rise in commodities in the local markets, offset by the collapse of the Iraqi dinar, as happened in Lebanon.”[/size]
[size=45]It is worth noting that Iraq relies 92 percent of its financial income in the public financial budget on oil revenues, while the last time it devalued the dinar was in 2015 when it raised the selling price of the dollar to 1182 dinars.[/size]
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