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The relationship of the exchange rate with the power of the economy
Economical 2023/08/21
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Yasser Al-Mutwali
believes that the general public, who are not specialists in economics and finance, believe that the criterion for the strength of a country's economy is the exchange rate of its currency against the dollar, or any other currency or means. While most economists in the world unanimously agree that this theory is not valid, we are often faced with a question; Does the value of the currency reflect the strength of the economy of that country?
What concerns me as a specialist in economic affairs is to show the reality of the strength of the Iraqi economy and that the fluctuation of exchange rates does not mean the reality of the country's economy, as financial and economic experts agree that the exchange rate for any currency is an accounting number agreed upon between global central banks and does not reflect the strength of the country's economy .
To analyze the facts of this theory, let's take a comparison between the Saudi currency and the Jordanian currency, to verify the
correctness of the theory from its error.
With regard to the Saudi riyal, for example, (one dollar equals 3.75 riyals), 100 dollars equals 375 riyals), and as for the Jordanian currency (one dollar equals 70 piasters, every 100 dollars equals 70 Jordanian dinars. The question is: Does this mean that the Jordanian economy is stronger
than Of course not, because the volume of Jordan's GDP is $50 billion, while the volume of Saudi GDP is nearly a trillion dollars.From this we
conclude that the exchange rate does not reflect the strength and durability of the economy.Therefore, fixed exchange rates are a purely administrative government decision, not It is related to the strength of the economy,
and if we follow international experiences in dealing with the size of their currencies, Argentina, Turkey and Italy have worked to delete six zeros from their currencies, which is a treatment to regulate currency circulation and reduce its volumes in dealing, and this proves that the exchange rate is an accounting number and nothing more, and by a government decision.
There are trends in some countries that work to liberate the value of their currencies by floating them because the exchange rate of the dollar is floating and liberalized, and here the estimates of governments remain with such a decision. Finance and economic experts attribute the reason for the floating to the inability to fix the exchange rate indefinitely, and this is related to the extent of economic and political stability.
The closest example of this is the Lebanese currency, in which the exchange rate has remained constant for decades, every 100 dollars equals 1,500 pounds, but it was soon exposed to chaos and instability until the exchange rate collapsed, unfortunately, which is what is happening to it now
.
In conclusion, the Iraqi economy is strong and solid, but the fluctuation of the exchange rate is caused by the political and economic instability
in the country.
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