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Monetary conditions in unregulated markets
04/10/2017 12:00 am [rtl] Renting money in Iraq: Dr. Mohammed Saleh appearance In the context of thinking about one of the prevailing concepts in monetary science called monetary conditions, which depend on a standard called the index of those conditions (MCI - which calculates the linear structures of a few of the financial market variables across the economy and in particular the nominal rates of short-term and rates Local currency exchange rates against foreign exchange. It has led me to consider the question of analyzing the monetary conditions and monetary behavior of individuals in the unorganized market in Iraq (a market that has often been confined to cash credit outside the formal or legal banking system and also behaves in its behavior outside monetary power controls) Which are under the supervision and control of the cash authority directly. Between these two markets, there are changes in monetary transactions towards a rising trend of interest-bearing riba-speculative cash transactions outside the formal banking system. It is an innovative pattern of interest called "leasing money." It is an accelerated form of illegal monetary transactions to justify the non-monetary credit market Official or irregular. This credit is mostly related to speculators' needs for foreign exchange. The cost of renting money is linked directly to exchange rates determined by the central central bank of the central bank and the parallel exchange market. The rate of renting the local currency (dinar) is today about 15 percent per month, which is very high at the annual level of nominal short-term interest. In view of the excessive amount of money and lending rates that do not fit the state of price deflation and the recession in the macro economy, The linear structures of the monetary conditions in the unorganized monetary market in Iraq and the measure of exchange rates in the parallel or unregulated market compared with the monetary structures in the organized market, especially in the areas of interest rate and exchange rate, show us. Cash equivalents in the parallel exchange market add average daily returns of about 30 million dinar, or windfalls, in exchange for an investment of one billion dinars and one billion dollars, or about one million dollars in the exchange market currently. This raises the question: How can we reach new or new principles to measure the monetary conditions of the unregulated cash market in Iraq? Controlling liquidity levels in the central exchange market requires the sustainability of liquidity and rapid cash circulation in the unregulated cash market. The safety valve for this sustainability in the flow of liquidity is the increase in the interest rate, which at the same time represents the cost of the flow of condensed cash transferred from the informal market to the regular market. The question here is: How much does the monetary authority have to pay for the risk premium, which is to absorb additional surpluses from the liquidity of the cash-transfer lever, which accounts for 77 percent of the total currency exported in Iraq? How much is the sacrifice of foreign reserves in order to impose price stability due to the rapid rotation or circulation of effective liquidity driven by interest rates? At a time when the exchange rate and stability remains the nominal stabilizer in influencing the stability of the overall level of prices. (A) The rental of money and non-compliance in monetary terms The idea of the speed of circulation of money goes to the rate at which the monetary unit is exchanged through various transactions or between one transaction and another, how many monetary units are used over a given period of time, and the speed of money circulation at the macroeconomic level is measured by the ratio of GDP to cash supply, Regardless of how money is measured, it is a measure that suggests that monetary growth leads to inflation. The speed of money circulation is a phenomenon that is realized when individuals desire to give up money or invest in it. Otherwise, any factors that call on individuals to keep money (ie, increasing cash demand / reverse money circulation) will lead to a decline in trading speed, while greater factors of spending or investment spending increase the speed of money. In the Iraqi economy, there is an active phenomenon that is dominated by monetary transactions and affects the speed of circulation of money issued by unregulated markets where traders, brokers, brokers, money-changers, and the promotion of rental money to add some of the customary legitimacy to these new forms of interest. There is a need to finance the foreign trade of the private sector, which annual activities of about 40 percent of non-oil GDP per year. The need to finance trade and foreign transactions is increasing in the demand for funds from outside the banking system because of the failure of the device to grant cash credit to the civil sector which Does not exceed 5 percent of GDP and 12 percent of adults can access cash from the regulated market because of the lack of formal banking system, while more than 40 percent of adults resort to the unregulated market or T official not formal to get cash credit by acting desired (and through the mechanism of rent money and cost usurious expensive). As the cost of cash credit by renting money in the unregulated markets by at least 15 percent per month, as we have said. Thus, the speed of cash circulation is very high driving the development of unregulated markets accompanied by the phenomenon of monetary leasing of the currency ( The high rate of cash circulation outside the banking system or the emergence of a monetary demand function for the stockholders has been inversely related to high interest rates and according to the cash leasing mechanism. In other words, the speed of money circulation is directly related to high riba rates. But the question remains, where does this increasing liquidity in circulation go through monetary leasing and what are their areas of employment most often without a little inflation due to effective monetary spending? On the contrary, the economy is still constrained by high deflationary effects in terms of low growth rates, high unemployment and stagnant price! There is a case of negative inconsistency in the monetary conditions ie between the role of the central bank's window to sell the foreign currency (auction) as a monetary policy and between the money leasing market as a financing behavior practiced by the civil sector. The central bank's role is to control local liquidity levels, a monetary policy that sometimes leads to a cash crunch and a lack of liquidity if the liquidity rate is not correctly estimated or forecasted. The unregulated market is active in raising the cash rent rates in dinars, generating a surplus in demand derived on foreign currency. The demand for the foreign currency financed by the surplus dinar is commensurate with the degree of the decline in the dinar's exchange rate against the foreign currency in the parallel markets. Cover the cost of monthly cash rent. A logical equation is also achieved in economic relations and ratios within the unregulated market itself. It is known that the lower the local currency exchange rate, the higher the interest rate. The negative separation or incompatibility between the regular market and the informal market occurs within the economic system. Cash by cash leasing mechanism. Where bank interest rates are lower than the interest rates in the cash lease, while the exchange rate of the dinar against foreign currency is higher in the organized market compared to what is in the parallel market. This is the case of monetary conditions inconsistency between the two markets (organized and unorganized). 2 - Monetary policy and the crisis of cash lease It is clear that there are two cash markets working in their behavior and directions on different terms or conditions of the contract and in accordance with the rule of mutual mutual exclusion. The phenomenon of monetary leasing, where the speed of circulation of cash is often condensed, is a source of excess demand on the reserves of the Central Bank of Foreign Affairs, which means sacrificing one of those precautions to counteract the liquidity of the effective was idle or choked movement of money market levers (RBA). Monetary policy pays an extra price for stability and is generated by interest rate shocks in the money market in order to maintain exchange rate stability and to counter the devaluation of the foreign dinar. The sacrifice of foreign reserves as a result of excess domestic liquidity and sudden shocks in currency levers is a risk premium and additional costs to monetary policy. Instead of the cash surpluses outside the banking system, savings deposits that serve real investment turn into a surplus monetary demand for cash transactions Foreigner through the windows and gates of monetary policy. Based on the above, the monetary policy of the central bank to maintain the stability of the general level of prices and reduce inflation using foreign currency as a means of defense or stabilized nominal anchor in the stability of the external value of the dinar, not born (in the presence of two cash markets) only cases of costs and additional charges not desired On foreign reserves, which are inversely proportional to the rise in short-term nominal interest rates in the unregulated cash market (ie cash leases). In the low general level of prices (by defending a stable exchange rate of the dinar), the unregulated cash market indicates that the real interest rate is the nominal interest rate on the regulated market minus the difference between the exchange rates of the dinar between the regulated and unregulated markets. Cash leasing, high leverage and the corresponding stability in the official exchange rate is only an expression of the risk premiums that monetary policy defends from its foreign reserves to control the liquidity levels that cash leaks as cash surpluses that are appropriated by the central bank's monetary policy windows (auction). 3. Conclusions The monetary conditions in the market are conservative conditions of maintaining the stability of the Iraqi dinar exchange rate (although the current account deficit of balance of payments), which is followed by the stability of interest rates in the organized market, including the monetary policy interest rate (which reflects the interest rate) Real positive about 6 percent per annum), which are matched by different monetary conditions in the unregulated market. On the contrary, an excessive rise in real short-term interest rates in the unregulated or illegal cash leasing market is as high as 15 percent per month Return to earnings per Altdharbah dinars achieved by the parallel exchange markets, ie, resulting from the exchange rate of the divisional dinars in the market exchange plus standard monetary policy interest rate clicks of). Therefore, if the monetary policy to adjust the interest rate and pointed upwards in order to attract excess liquidity and sharpened from the unregulated cash markets as an alternative to the flow towards the central monetary window, this does not mean in light of the phenomenon of inflationary prevailing only a contraction of economic real activity and deepen the imbalance conditions Monetary conditions for the unregulated or informal market. If monetary policy is to sacrifice the exchange rate and stabilize it towards devaluation of the dinar and create inflationary waves, the local currency rental market will feed inflation by maintaining a positive real interest rate that is constantly generated by inflationary expectations that ultimately maximizes the cost of managing monetary policy and drains reserves Hotfile. Therefore, there is no alternative but to promote medium-term hybrid financial instruments (3 years) as central bank bonds to be bought through the cash market with balance-sheet interest and repayable at maturity in foreign currency and at a balance-sheet exchange rate as an alternative to cash liquidity (whenever possible). Such financial instruments and instruments are instruments of assistance that enable the imposition of behavior that is a state of consistency in the monetary conditions between the two markets (the organized money market and the unregulated market ). The impact of the monetary behavior of unregulated markets and their penetration of the official financial instruments hybrid and the growing market of the leaked currency and monetary terms harmful to the cost of managing monetary policy, and this monetary consensus between the markets organized and unorganized monetary policy objectives are achieved in controlling excess liquidity levels and generate stable price expectations without Additional costs borne by the monetary authority. (*) Appreciation to Professor Dr. Ihsan Secretary / Chairman of the Board of Trustees of the House of Wisdom , which sparked a debate with me for a few minutes about the growing phenomenon of currency rental markets in Iraq. Which prompted me to analyze the growing phenomenon of rental currency in the circumstances of the economic downturn. [/rtl] [You must be registered and logged in to see this link.] |
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