- PUBLISHED IN 07/16/2015
The exchange rate of the basic economic variables that change per day continuously in response to the forces of currency supply and demand. And the importance of the effect of the exchange rate in economic performance varies from country to country according to the country's circumstances and the type of economy and the stage through which the ladder of development and the nature of the economic structure of the country and the diversity of income and wealth sources in it, and therefore the exchange rate once be independent variables affect the dependent variables and once again be the same He changes holds in other variables variable, and there is no one to do with the deltoid causality of the exchange rate trend, I have personally I ask not to raise the dinar exchange rate since 2006 and I wish I stayed (US $ 1 = 1500) to the economy was put on the best and we have provided a reasonable level of protection the domestic product and provided funds of the general budget of the state.
First: General features of the philosophy of the exchange rate in Iraq:
Dialectic of cause and effect: that the exchange rate of the currency of a country, are a natural product of the strength of the country's economy and consistency of economic performance in which the input volume of domestic and foreign economic activities and outputs, and the level of internal balance (savings-investment) and external balance of the balance of payments (exports-imports), it is the power of a country's currency strength of its economy, and not vice versa, as some have imagined in Iraq, where neglect the real forces that are supposed to create values and entry and accumulation and growth, and cling to the variable easier because it is under the hand (the exchange rate) and make the entire economy follower of Tzbzbath in the short term this is not true understanding.
The exchange rate is authorized mirror that sees the economy in the face: If his face and Performance beautiful featured his photo in a beautiful mirror, and if the ugliness of his face and his performance was his picture ugly, either the shape ugly and beautifies all types of aggregates, it looks like lifting the Iraqi dinar exchange Bekazat feeble price fall when any storm which is called idiomatically (exchange rate inordinate), but, how much is the amount of hyperbole this, it depends on the size of the gap between the exchange rate as if it were floating dinar (fully undergoing the forces of supply and demand) and exchange rate controlled through crutches and aggregates exercised by the Central Bank of Iraq, and we can Kmokhtchin that we use to measure models Bmanoah high to portray the image of a floating dinar and measure the gap, Van was a great superiority of certain limits, there is no benefit of the Iraqi economy to uphold at the official current exchange rate set by the Central Bank (US $ 1 = 1166 Dinar ) We must move to a higher level reduces the negative effects of hyperbole price of the dinar exchange and creates positive effects support the performance of the Iraqi economy and maintain its foreign exchange reserves of continuity Alastnsvav under the weight of what fosters increased reserve less than what spent to maintain the (current dinar exchange rate) from the reserve. This equation is the other must be observed with standard size hyperbole that we talked about earlier.
What are the local currency coverings: Then what is supposed to the dinar exchange rate against foreign currencies strength, lids no longer as it was it the other has changed, no longer gold and foreign exchange from the world's leading currency is the basis for the cover of local currencies in developing and underdeveloped countries, but Many indicators related to the price of a country's currency exchange, including the economic performance in the supply side appeared, and I mean the gross domestic product in terms of size first, and where the sources generated Secondly, as well as internal balance (the volume of savings and the volume of investment) and external balance of the balance of payments (the volume of exports and the volume of imports ) and rates of movement of capital in and out of the country, and that the size of confidence in the economy and rates of growth and governance performance and credit rating of the country and other indicators embodied nutshell wide acceptance of the currency of the country in the coverage of trading commodity not to mention that that trust promotes the coin function as a store of value and is present to keep the wealth among institutions and individuals, and it is no longer foreign exchange reserves weighting the largest in determining the exchange rate if the currency floated because this reserve in the absence of other indicators of the performance of the firm Economic stable, lead to reserve depletion, which continues to continued support weak currency you want to adapt and take a natural value-driven correction exercised by supply and demand, but the administrative decisions of the Central Bank and operations practiced by the auction and a mix of social and political pressures and desires and special interests in the short-term ahead of the interests of the Iraqi economy in the long term and continue to work as opposed to development and reconstruction.
For example, the Jordanian dinar stable long ago, why?: It has to do with the sources of gross domestic product (GDP) from where it comes ?, Do you come from a dominant source as is the case in Iraq, where oil dominates the contribution of up to 80% of gross domestic product (GDP), for example, or He comes from a variety of activities, whether sector-born Rei, this sector which are added values of the elements of production involved in it are few and dominated the earth return (rent).
As is the case with oil, which does not contribute to the work, but something very simple and there is a limited contribution to the capital also compared to other sectors, and therefore the larger the yield is (a godsend) largesse of the earth without Entrust ourselves to make any manufacturing operations doubled from the multiplier values and raise the price the market for several times, or is sold as a raw material, and when those heavenly gift be grown on the activity of the firm be subject to fluctuations in the global market and have the effect of supporting force the currency exchange rate and frail, let alone whether those crude exports total, staying in dollars, they are then, dollars out of Earth, fit together and integrated in its external economy than with the domestic economy, and the biggest problem it fully in the government's pockets, and that's where government spending is mostly (irrational) It is difficult to adjust the rationality standards which, the pumping of dollars in economic body not be through the arteries correct and veins necessarily, it may be a very small vein is injected with large amounts of foreign exchange because Injector (the government) is not the same needy (the economy) may be large veins need a large injection, but it is not injected into the only thing very little, in front of this picture will get confused The relationship between the presence of dollars on the one hand and the citizen real absorbed on the other hand, Valachtnaqat operate our crisis hurt the poor and surpluses caused us escape of dollars of income cycle to return to the outside, either because they are washed because they are from suspicious sources, or they are looking for investment opportunities after a failed environment crisis Local investment absorbed, or is it that the generation of the gross domestic product (GDP) came from multiple, balanced and real sources stemming from the interaction of the five factors of production (labor, capital, land, organization, technology), and if they balanced the needs of the economic activities of foreign exchange directly proportional compatible with outputs
Those activities of contributions to GDP and thus their contribution to the creation of the rights of others a large section of them resident in foreign currency being directed for export, so the Jordanian dinar, for example, stable over a long period of time, not because the Central Bank of Jordan adept at adjusting the dinar exchange, never price, but The Jordanian dinar is the product of equations produce real and spending both on the supply side or the demand side, because the requirement comes from the activity itself based on market forces and private sector interests, and output is the output of trying to satisfy the market and profitable for the private sector, nothing is imported in order to tamper corrupt to conclude recoverable contracts and get commissions, this attitude of the government sector and not the attitude of the private sector, because the government in the narrowest economic episodes in Jordan and in the wider economic episodes in Iraq gets the difference, Valdhabt Jordanian dinars strong real market derived from real imports and real exports and imports paid for from the pockets of those who need and exports enters revenue from foreign exchange for the pockets of exporters and they are not the government,
and the government, but the collection of levies to finance their activities, either in Iraq, the picture is upside down because all the exports are almost government revenue in the government's pockets and the structure of imports distorted because it is a real driven forces are not (Strong Market) and the actual need but is a strong personal use administrative corruption and administrative drawbacks and the bribes and others. Therefore, the Central Bank of Jordan does not need a lot of work to keep the exchange Jordanian dinar stable price because the product of the real power in the market, while the Iraqi dinar exchange rate is not the product of the real forces of the market economy, but rather the result of administrative procedures (sound was or wrong) for government employees and the Central Bank, so The Jordanian dinar exchange rate variable belonging to the forces of the Jordanian economy, while the Iraqi dinar exchange rate has become a variable (independent) and intended to be used to make the Iraqi economy affiliate, which is another form of (Iraqi economy upside down) that we have mentioned in a previous article.
Rentier economy eats itself: dependence on crude oil create our people lazy worshiped public office even crumbs salaries and run away from the private sector, discharger of any spirit of initiative, not fluent in market risk management, if he is forced forced to work in the private sector is a gambler than an investor , seize the opportunities offered by a government employee and they are many in order to manipulate, not thinking to grasp the opportunities profitable and economically viable, not tired mind the economic and financial accounts, which he calls a complicated and does not accept the use of consultants specialists to avoid payment to them without realizing that it could lose a lot, live mentality totals it handles peddlers no matter how great his fortune, does not pay for the time of interest in the field of deep-rooted and the sustainability of its realization, but Aosrh time only in a very short duration and to reap quick profits, has no affiliation to the activity and sector production is ready to leave at any moment towards other activity more tempting in the field a quick profit derived from manipulation, and above all longs for government action when it had the chance, and the government sector flabby tired arranged Dhalth content at the end of the month (whether produced or not produced) and this major catastrophe, Kafr El-economic standards, but those who work carefully and perseverance it that have arrows from Alvargin who do not speak only problems, hypocrisy, ingratiating and corruption, and so statistics indicate that the government employee of the Iraqi work under slouch this sector does not exceed (19 minutes of work a day), and all that work that we sell crude oil, which is my most volatile and a decline in markets, years ago, the exchange in the global markets equation (price 2 barrels of oil = 1 ton of wheat) and today with the decline in the price of the issue and the escalation of the price of what we import has become (the price of 11 barrels of oil = 1 ton of wheat) and we still neglect the obstacles to the production of wheat and Nzll difficulties before the export of crude oil , and this is one example of the thousands of examples in the real productive sectors on the line compass that we walk on them, and we still we capture ourselves and we capture our currency for raw dollars that come out of the earth and all its volatility and disruption in the overall national accounts and economic for our indicators, in front of these data we want to remain clinging virginity false to the price of the dinar exchange, and by extension remain Izr general ideas without specialists ideas, and live the illusion that the strength of our economy from the power of our currency, and we have examples do not learn from them, we have Russia when he was economy of the siege and the problems was the priority has to maintain the rhythm of the sound economic performance, and for him without simply for the virginity of the ruble exchange rate, public say collapsed Russian economy because the ruble collapsed, and you pay the Russians to protect their economy from collapse by reducing the ruble exchange rate, it then means the treatment and is not a disease, is also believed theorists (upside down), and the same thing I did the Islamic Republic of Iran , it was faced with the most severe types of blockade and economic war and turned the equation and make its economy depends on the self and grow their productive sectors quickly, but had to make an offering of it, which is giving up virginity Iranian Altoman, until he became at a very low against foreign currencies, but this offering prevent the real Iranian economy of collapse and continued demand for the product until the Iranian occupied large areas of neighboring countries markets. Note my brothers, if we produce (tons of wheat instead of 11 barrels of oil) and produce what we wear and what we build and what we ride and use instead of staying on oil, we gain another positive factor is the price difference, we gain is derived real stability of the production of real creative sectors values added rely indicators calculation supports the stability of the value of the dinar and reduces its dependence on fluctuations of oil markets and oil revenue for the government and method of disposition, and much closer because the real powers in support of the stability of the Iraqi dinar to be similar to supporting the stability of the Jordanian dinar to that.
Second, the damage associated with the price inordinate exchange:
When the dinar exchange rate is not a real rose in previous years upped the auction conducted by the central bank to leave many negative effects on the economy, including:
1. Low oil revenues resident dinar:
At the time disputed ministries and provincial allocations to prevail and the recession in the economy, we note that the difference in oil revenues (JD) as a result of raising the dinar exchange rate of 1500 dinars for $ 1 to 1166 dinars for $ 1 in the budgets of the (2007-2013) as in the table below , and the loss of more than 161 trillion dinars, the equivalent of now at the official rate of the dollar more than $ 138 billion, contributed to the widening deficit in public budgets, and had been injected into the economy through an auction currency - quickly went out again - to achieve the goal of raising Exchange Rate dinar, without being aware that this goal originally wrong and not a positive impact on the overall economy.
2. raising the dinar exchange rate did not stop the inflation phenomenon:
May be reduced headstrong inflation, but he did not stop for the phenomenon, why ?, because inflation in Iraq real often and not in cash, as demonstrated several studies we have had, that inflation sources come from the driving factors of cost and private cost to provide security and the cost of fuel, energy and cost infrastructure, production, transportation, and probably very few of them Mtota of the increase in the money supply, the sense is paid shocked view and shock the display part does not mean Shehta, but the high cost of production, may be part of it drawn towards the top demand, but the demand is saturated keeps deprived society and prevent him of development and where we went out of the failure of 40-year-old gap and there is a great demand deferred supposed to seek to saturated not suppressed again, so you do not raise the dinar exchange rate importance in reducing inflation rates as long as the forces of supply is still unable to overcome the crises in various sectors, and the forces of demand irrational mostly driven by spending government irrational, where most of the private sector spending indirectly generated, government spending, the fact that the private sector works contractor with the government often will move an important part of the deformation government demand to deformation and ducts private demand impact derived from corruption and therefore it stayed the dinar exchange rate is improving and inflation increasing at the same Alatjah.kma in the figure below, where we pay less dinars to the dollar (exchange rate improvement) At the same time dinars more for the same goods and services:
3. dollar smuggling from Iraq:
The cheap dollar compared to what it is in neighboring countries and the world leads to the prevalence of smuggling cases in search of a price shift Supreme like looking for a cheap commodity demand top price of saturation. This forms Mtota from the fact that the central bank Magali in raising the Iraqi dinar exchange rate against the dollar under the pretext of supporting economic stability, which is the other did not materialize, because the instability Mtota of factors other real related to production and employment, investment, income generation and cost and added values rather is derived from monetary factors task, it is not able to variable exchange rate that addresses the structural imbalance, so it was bet on the stability in the exchange rate alone does not lead to the development will not lead to development, it was a decade of lost unfortunately development, because development is to break the monotony and stability and create a strong payments in the side of the process real, to be the cause of creating a sustainable stability in the future, and it was the central bank that is the power of the real economy is set for the value of its currency floating, not improve the image of the economy through freehand value coin administrative Bekazat flimsy may swallow up foreign exchange reserves without being able to create stability, and smuggling This has led to increased demand for the Iraqi dollar from neighboring countries, and will not be able to every police methods of control over it, but this is possible through prudent monetary policy, and the dollars that do not run away for speculation and selling price up, they run away in search of better opportunities for investment because the structural imbalance and poor business environment and corruption, reflected in the growing costs makes less profit opportunities.
4. strengthening the economy of the phenomenon of rent-seeking:
The lifting of the dinar exchange rate works as opposed to protectionist measures required to protect the local product to compete with goods of similar imported services, which means that the exchange rate inordinate provides a margin of protection for foreign product to compete with local product, if any, which we are working upside down counter to the interests of our economy, and so will prices of imported goods cheap dollar looks pricey Iraqi consumers and competition, while prices of exported goods look expensive for foreign consumers and competition, thereby enhancing the imbalance in the structure of exports where oil remains only dominant, as well as enhance the disruption of the structure of imports only consumer favor, after a reluctant local product production to its inability to compete with foreign final product will not be need to import capital goods (capital) economy is occurring among the largest financier about Bria oil consumption.
Also, content import to the size of the total demand in the Iraqi economy is high mainly, which increases the leakage in the income cycle because the income generates mostly from oil, where accounts for almost 80% of GDP is spent mostly abroad for the purposes of import as supplemented by income cycle abroad, This is too late more with the lifting of the dinar exchange rate procedures, some might say, where the product of the Iraqi order to encourage him to export ?, or say let's import cheap goods and consume as long as we do not have the production, this argument for some people, unfortunately, is the case for retaining the comfortable pillow of the proceeds of oil and hibernate Long Iraqi economy (Sleeping economy), but see enough sleep in a large hospital named Iraq eat the food and water the medicine versus crude oil pipeline extending to the outside, and why? Iraq only has to sleep and lag all other oil countries girl productivity rules replace oil depleted? .
5. deepening of the phenomenon of dollarization:
When floating the Iraqi dinar with all currencies, except the dollar as associated with equations calculation by evaluating the revenue in the budget, and associated with him again at the central bank auction without the rest of the currencies, this companionship continuing with the dollar, both toward the rise or fall of the price of the dinar exchange They indicate the presence of (inherent) between the two currencies and not (floating relationship) which enshrines the phenomenon of dollarization, no one claims to be raising the price of the dinar is facing excessive dollarization, because dollarization achieved by sticking both directions as it sounds.
Third, it raised associated with the decline in the dinar exchange rate:
1. High inflation:
Will get a rise in inflation rates with the significant decline in the dinar exchange rate, especially in the short term due to declining purchasing power of the dinar, this effect side will have an impact on the social side slipped people's living standards especially from people with limited income (craftsmen) and those with fixed incomes (staff state), and after the passage of the economic adjustments desired associated period for this procedure reform and the absence of some or all of the adverse exchange rate overvalued the effects mentioned above, start positive to emerge effects, length or palace of this period it depends on the availability of complementary factors other and the flexibility of the production system in the country , we mean effects positive is an improvement in the competitiveness of the domestic product after the demise of margin protection for foreign product that was provided by the exchange rate overvalued it, and the increasing government's ability to spend on infrastructure that reduce production costs, which will be followed by increased production and operation and increase access of distributed elements production form in which it is facing the negative effects of inflation, where regain real incomes recover and may improve more than the previous, and when these adaptations work be inflation (inflation development) is especially bad consequences in a country that seeks development.
Praised effects of development of inflation will re-balance for people with limited income in the private sector, they will sell their products competitively and higher prices, however, aggrieved at the micro level remains are the owners of fixed inflexible entry (state officials), but at the macro level, the economy will correct itself, where become over time a government job repellent and the private sector an attractive, a reformist demand does not differ by two, and when that happens we put laws and regulations protect workers in the private sector, by contrast, put the rate of increase in staff salaries is directly proportional to the rate of inflation, after that tend privileges of the other state employees which tarnished the labor market and in particular the exclusive right to receive a piece of land and the exclusive right to obtain a guaranteed salary and other loans.
2. Escape phenomenon of enlightened father:
The phenomenon of escape from the currency existed in the period of the economic blockade and got with the Iraqi dinar when the dinar fall day against the dollar and loses part of its purchasing power because of hyperinflation, and people were fleeing from the dinar towards fixed assets, gold or foreign currencies stable (fixed) as dollar, the beneficiary Escape from the phenomenon of the dinar was working abroad who receive wages and revenue in dollars while purchases are in Iraq Dinars and were able to purchase real estate assets as a result of the high dollar exchange rate against the dinar.
He got the contrary after 2003, when the dollar falls against the dinar is not an expression of the real side growth in the economy, but upped (Baekaz) by monetary policy, and became the beneficiary of this phenomenon are working in Iraq and obtaining their wages and their returns in dinars, but that their families resident abroad and economic activities List abroad are buying assets, real estate and to accumulate dollar balances abroad taking advantage of the exchange raised forcibly dinar rate (rather than floated), where they get more dollars Bdnanar less, and most of the beneficiaries of this phenomenon engaged in service and commercial fast work of yield and are reluctant for access to productive areas Slow-yield and high-risk and thus be in their interest to promote the development rentier economy and the development of consumer behavior without the development of productive behavior in Iraq.
If we abandon extremism in the dinar exchange rate and made floating big up and over the two bounds of relative stability within the limits of the exchange rate of the lowest of the dinar, may go back to the phenomenon of escape from the dinar, meaning that the dinar loses part of his job as a store of value, but it may reclaim after investigation relative stability, even after a period of up to a minimum, despite the fact that the International Monetary Fund could be convinced to float the dinar, while maintaining a certain level of stability in the value of the currency orbit, but the Central Bank of Iraq was more royalist than the King in the previous policy.
Finally, if we compare the negative exchange rate overvalued in, and the effects of the forecast as relics if we retreat with him, we will find it total, the effects of reform desirable rebalance of the Iraqi economy and save him from the clutches of the imbalance, even if some medicine bitter and some a troublesome side effects, but it treatment leads to healing, then what is the alternative for non-death treatment, we will stay clinging to an error at the price of high-dinar exchange are fake laugh it on ourselves, in order to maintain the level we have to pumping more more dollars at the auction, in the equation dip our revenue dollar, we'll be witnesses on the foreign exchange reserves at the central bank swallows by the black hole (the exchange rate) to become without the required level of cover and we can not develop other wrap indicators then we are facing a real crisis, and we have to then start the same reform measures, so why do not we are embarking upon We reserve Manfezon, before the problem is compounded, and impossible solutions.
(*) Counselor for Economic Affairs-prime minister