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The value of the Iraqi currency and structural economic imbalances

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Hkp1
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The value of the Iraqi currency and structural economic imbalances

Post by Hkp1 on Tue 14 May 2013, 2:31 pm

The value of the Iraqi currency and structural economic imbalances



The value of the Iraqi currency

And structural economic imbalances

D. Kamal Al-Basri and harmful Sbahi professor

Iraqi Institute for Economic Reform

Article
seeks to examine the value of the Iraqi currency fluctuations and
interpretation of structural imbalances and weak governance vocabulary
application and other behavioral factors. And concludes that the
following factors may have led to increased demand for foreign
currencies and shortage of supply: External political, and weak business
environment, the economic and fiscal policy, and the lack of political
and economic stability, and the weakness of the productive capacity of
local, and that the improvement in the rate of per capita income of Iraq
was a factor is the other, weak governance and the rule of law, and the
decline of family remittances from abroad, and the growing presence of
financial transfer companies and brokerage firms (parallel market), and
the emergence of trade zones in border ports.

Apply thanks to Dr. Ahmed Hamdi al-Husseini, for his participation in the preparation of this paper

The value of the Iraqi currency and structural economic imbalances

Article
seeks to examine the value of the Iraqi currency fluctuations and
interpretation of structural imbalances and poor application of good
governance vocabulary and other behavioral factors.


1. Structural imbalances

Derive
the Iraqi currency recovered from the substance of the economy, and it
can not be studying the stability of the value of the currency away from
the deal with the economic reality. Currently economy suffers from
weakness in its components core, boils down to the reality of the Iraqi
economy through the reflection in the components of GDP in 2011, where a
different sectors to the GDP as follows: Oil 54.74% and Agriculture
4.15% and the industry about 1.83% .... Etc. It is clear that the Iraqi
economy's dependence on the oil sector. We have increased the value of
gross domestic product (GDP) at current prices from 53 499 to 211 310
000 000 Iraqi dinars for the period 2004 -2011, for the same period
increased the value of gross domestic product (GDP) at current prices
excluding oil from 22.691 to 95.822 Mlyardinar.

The problem is
that when oil revenues are much bigger than the financial returns
obtained from taxes, the government will find usually have at their
disposal a significant financial asset earning easy (not achieved at the
expense of the financial resources of the citizens). This phenomenon
will be encouraged in the absence of democracy (in the full sense) to
give the government ample space to act on public money are inefficient,
and examples of this have to resort for governments to adopt:

1) economic policies sterile in its effects: represented an increase of
salaries and wages away from the accounts of labor productivity, and
expand to create employment for the purposes of non-productivity
resulting them inflated prices, and pursue a policy of supporting
non-economic updated deformation in the structure of the economy and
market indicators, and the trend towards spending unproductive political
in essence, aims to connect the citizen power.

2) non-spending
economic policies: represented activities have no justification and
كالمنح economic aid and open the external circuits and cultural
diplomacy does not add real value to the economy and citizens, and be at
the expense of pressing economic areas related to the dignity of the
citizen.


As a result of each of the foregoing, the private sector
in these countries enjoy the presence of weak and marginal, because it
does not enjoy the support (as is the case in the public sector), which
is concentrated in the areas of economic, commercial and service. The
absence of the real role of the private sector means the absence of
creativity and speed of adjustment to market needs and provide
employment outside the public sector. The uniqueness of the public
sector production and the absence of private sector competition lead to
the continued deterioration of the efficiency of public sector output,
الامرالذي requires government intervention and protection of the public
sector through financial support and customs protection policy
(currently support annual rate of 3 billion dollars). Thus, the
government is working to protect the institutions of inert productivity
at the expense of the citizen, who he unchanged obliged to buy goods or
services at a higher price and the quality is poor. This usually
sacrifice and also emphasizes global trials does not lead in the short
term and not run into improved performance and efficiency of the
production of the public sector. The absence of political role of the
private sector turns citizens into a cake and hired government employees
belonging to the directions of the government, which is no doubt it
would affect the independence of the individual from the government and
then the breadth Square independent civil society organizations. The
government's move in those contexts eventually lead to a split into two
factions citizens of different users and others.

Because of
limited job opportunities that could be created by the public sector,
the government is seeking to create jobs through the promotion of the
role of the security by increasing the number of employees of the police
and army and take advantage of the surplus cash in the purchase of arms
and military equipment. The growth of military capabilities encouraged
to address the internal and external differences militarily, and then
pre-empt any signs of growth and development in absolute terms. On the
other hand that the adoption of oil revenues on the price of oil world
market displays the economies of those countries to the waves of the
tide, which is reflected by the sharp fluctuations in oil revenues (as
Invert in planning the federal budget from 2008 to 2009. Finally, the
oil revenues of the States usually benefit including the cities over the
countryside, and this is what causes a migration from the countryside
to the city, but no doubt that this migration is usually in short period
of time resulting in bottlenecks sharp due to insufficient supply of
services in relation to demand and to social and economic problems
manifold. and Aaktefi impact of this situation on the the level of
services available in the city to exceed the weakness of the
contribution of rural areas in the agricultural and livestock production
and for changes in the fertility of the earth, and that lead to heavy
losses. fact that what progress we can find him credibility in the Iraqi
economy, especially during the period of time 1968 - 2003, no doubt
that the effects of these policies and nature has not changed radically,
because of the political pressure that list reflected the weakness of
political will to change.


2. The market value of the Iraqi currency

Released
in 1930 the first of a special law to issue currency Iraqi Dinar, and
in 1932 was the issue of the Iraqi dinar and the dinar = 3.3 pound
sterling, and in 1958 was the disengagement with lb dinar has been
linked to the U.S. dollar on the basis of the dinar = 3.3 U.S. dollars.
During the period from 1932 until 1990 was issued by the dinar Version
12, and after 1990 the currency was printed locally in Mesopotamia Press
and exchange rate-, and after 2003 were printed issue a new currency
from the dinar, and became a floating exchange rate orbit. Figure (1)
shows the exchange rate of the Iraqi dinar against the U.S. dollar, the
official at the Central Bank (Auction currency) and in the parallel
market (the local exchange market) for the period from January 2011 to
February 2013.


Source: Central Bank of Iraq

The local
currency is part of the sovereignty of the state and also is reflecting
the amount of economic well-being, and plays the exchange rate played an
important role in the economic activities of the States, whether that
activity commercial or investment, which occupies the exchange rate hub
in monetary policy, where it can be used as a target or a tool, a as
well as an indicator of competitive state through its impact on economic
growth components, such as investment and the degree of openness to
international trade and capital flows, and the development of the
financial sector.

And knows the exchange rate: is the ratio
obtained on the basis of the foreign exchange swap in the national
currency. The exchange rate is determined according to the law of supply
and demand, the more demand the price of the currency and the lower
demand for less price. There are two types of drainage systems used by
States to determine the value of its currency:

Fixed exchange
rate systems: are installed either currency exchange rate into a single
currency is characterized specifications certain Kalqoh and stability.
Or to a basket of currencies on the basis of the currencies of key
trading partners, currency or constituent unit of the Special Drawing
Rights (SDRs), or minerals Althmnah such as gold and silver.

Flexible
exchange systems: characterized by flexibility and usability of
adjustment on the basis of certain criteria, such as economic
indicators.

State may follow a managed floating system where the
authorities adjust exchange rates based on the level of frequency has
reserves of foreign currencies and gold. Or use the free float, which
allows for the currency value to change up and down as the market, this
system allows for economic liberalization policies of the exchange rate
restrictions.

Itathersar exchange first measures the central bank
which represents the key management in the state to identify and manage
monetary policy so as to contribute to the achievement of economic
goals that are looking her state, and secondly commercial banks and
remittance companies financial terms intervene in the market to execute
the orders of their clients or for its own account, where these centers
collect customers and orders doing banking Palmqasat, and thirdly they
are brokerage firms and brokers who collects militants Omer purchase or
sale of hard currency for the benefit of several banks or other traders
away from transparency.


Factors affecting the currency in Iraq

Recently
and over the past few months, decreased the value of the Iraqi dinar
against foreign currencies, reaching in some cases the market Parallel
1300 dinars per dollar, after it was stable on the rate of 1185 dinars
per dollar, despite the stability of the selling price of the Central
Bank's 1166 dinars with commission of 13 dinars for transfers any 1179
dinars to 1171 dinars to the sale of cash and this indicates to the high
demand for the dollar in the domestic market and for the following
factors:

• 1 - External factors: formed a political and economic
crises in neighboring countries (Syria and Iran) and embodied in the
need for these countries to the dollar currency and foreign currencies.
Who got the local currency is reduced in those countries and reflected
down the price of exports to Iraq, and create windows to attract the
dollar from Iraq to those countries through transactions to the Iraqis
and alluring at the same time a source of hard currency to the Iranians
and the Syrians. On the other hand there is interdependence of social
and family with these countries may also have to exit port dollar, but
it is difficult to predict Bmekdarh.

• 2 - economic business
environment: represented by the factors which result lead to a flight of
domestic capital and the decline of foreign investors, including
political instability and the absence of the rule of law in economic
transactions. There is no doubt that the time period that followed the
2008 saw an improvement in the security situation and then in the rate
of inflation and the exchange rate. However, the economic environment is
still repulsive acts do not encourage project planning medium or
long-term. Which led to limited activities on some business and
commercial projects yielding profit fast, but I doubt that the
percentage of it turning to countries other scarce liquidity arising
from the impact of the financial crisis that began in late 2008
(reaching rank Iraq 165 of 183 countries in 2012)

• 3 - fiscal
policy: Previous years have seen high levels of government spending at a
greater rate than any other country in the world (public spending rose
from 34.6 trillion dinars in 2004 to 117.1 trillion dinars in 2012) and
most Pictures Consumer spending is leading to the rise in spending the
outside world (travel, medical services and seminars, and import of
goods and investments in real estate projects, etc.), and also led to a
rise in net Iraqi currency traded amounting to 36 trillion dinars in
2013, raising the demand for foreign currency, where the value of
imports of Iraqi 37.3027 billion dollars in 2010 to 40.6325 billion
dollars in 2011, a change rate of 8.9%.

• 4 - double tax
policies: also include the non-application of the customs tariff law and
of course that result in flooding the market with goods and services
payable to the dollar in most cases. Also twice as efficient collection
of receivables Aldharbah check ensures additional profits may find their
way because of the weakness of bank credit to the Iraqi abroad dollars
Authority.

• 5 - political and economic stability: Because that
Iraq states described as phase transition, and the political and
economic stability, we find the proportion of individuals maintain
accounts in foreign banks abroad and usually they are of senior
officials and wealthy, and increasingly these transfers directly
proportional to the height of the oil revenues.

• 6 - the
weakness of the local productive capacities: that the improvement in
Iraq's per capita income of 1670 dollars to 5400 dollars makes looking
for initiating more in terms of quantity and quality. This factor is
reflected in the market through external spending on the import of
machinery and new materials or by increasing spending on foreign
consumer goods.

• 7 - weak governance and the rule of law:
reflected Bagr the public money, corruption, and an example of the
identification of projects guesses more than their real value, lead
naturally raise the frequency converter of the Iraqi dinar to the
dollar.

• 8 - الحولات the family from abroad: in previous years,
there was a significant proportion of family الحولات from abroad are to
the inside and on the impact of improvement in the rate of per capita
income of Iraq, but this has now eased transfers to large ranges.


9
- money transfer companies and brokerage firms (parallel market): The
presence of these companies to encourage the practice of monetary and
foreign transfers that make up the pressure on dollar assets and was the
first adoption documentary conversions.

• 10 - the low incomes
of non-oil foreign currencies due to lower international grants and aid
for reconstruction and the decline in the U.S. presence in Iraq Akhas.


11
- trade zones at border crossing points: that the presence of these
areas encouraged to pay cash in dollars directly at the border points of
contact, which thus leads to a direct increase in demand for the
dollar.


Recommendations

That what is happening deformation
in the structure of the Iraqi economy is a foregone conclusion rentier
economic policy, and is not expected to control this deformation near
extent. As the work requires the application of institutional governance
vocabulary of the adoption of competencies, strategic vision, a sense
of responsibility, transparency, ensure the rule of law, ensure
participation and acceptance unanimously and achieve the goals of
equality can not be achieved in the near term also. Overall solutions in
monetary policy requires a long time to achieve the desired results,
based on the factors affecting the local currency in Iraq find it
necessary solutions and division into two procedures:


Quick solutions (short-term):
1
- to reduce pumping hard currency (cash sales) in the central bank
auction and the adoption of increased foreign remittances.

• 2 -
cash sales price increase in the central bank auction for the equivalent
of selling price in the auction of foreign remittances in order to
cancel the profit realized because of the difference between the two
rates.

• 3 - buy and sell foreign currency for remittance
companies and financial companies to mediate done by licensed banks in
Iraq in order to reduce non-compliant transactions of the conditions and
procedures adopted.

• 4 - forcing traders and dealers in the
areas of trade exchange between Iraq and neighboring countries to deal
financial transfer and letters of credit instead of cash purchases.

• 5 - commitment to a transparent auction information and cash transfers and development of an electronic information system.


Radical solutions (long-term):• 1 - the audit of the financial policy of the state and reduce inflation in operational spending.

• 2 - need to speed up plans for banking reform measures in order to facilitate the cash exchange.

• 3 - to improve the tax code and work to expand horizontally while reducing tax evasion.


4
- activate the law of customs tariff because of its important role in
providing incentives for producers with economic advantage, leading to a
reduction in the volume of imports as well as improved operating
income.

• 5 - improve the business environment in order to raise
economic efficiency of production companies and local productive
enterprises that will reduce imports and increase the intake of foreign
currency through export and attract foreign investment.

• 6 - the
use of modern electronic mechanisms in the distribution of salaries and
the use of bank instruments and encourage saving.

• 7 - can
issue a new currency or deletion of zeros from the current currency to
have a positive psychological effects on the local currency dealers.

D. Kamal Al-Basri

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weslin3
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Re: The value of the Iraqi currency and structural economic imbalances

Post by weslin3 on Wed 15 May 2013, 10:07 am

Big struggle if they don't get their country going with a valued currency.

ron-man
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Re: The value of the Iraqi currency and structural economic imbalances

Post by ron-man on Wed 15 May 2013, 10:39 am

Very long,but also very interesting.thanks.

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