Some observations on the determination of the volume of foreign currency reserves

Some observations on the determination of the volume of foreign currency reserves

 Sinan Shabibi Mohammad Reza


You can not put a quantitative target for foreign currency reserves, as this depends on the government's request to the Iraqi currency sold by the Central Bank of its dollar made ​​up the reserve, and this demand is determined by the economic activity of the government but is considered a variable externally to the central bank, or may be specified from the bank , which may create a price for another exchange. Also, this process is not a commercial operation and it is a cash transaction, although the Reserve spent a large portion of it to trade finance for the private sector, but surprisingly, that is to look at this process like a business process. It is a process cash, where he was the central bank dinar to receive the Commercial Bank of the dollar, then the clients of this commercial bank using the dollar in their trade and this process gets out of the area of the central bank.

do not know what is the goal that confirms the central bank said reserves will not reach 100 billion dollars (range 14/04/2014) and is carried out as to whether the Reserve exceeded this limit. If this limit is exceeded due to the possible import-intensive operations, eight case does not relate to trade only, but includes all other transfers, is when the central bank's intention to restrict such transfers. The reserve and that the process of cash it is determined within the balance sheet of the Central Bank nor is mainly determined by the import activity. There are those who believe that the central bank may intentionally lending to the government the amount over the limit imposed which is contrary to the law of the central bank, and therefore, it must modify the law to determine the volume of borrowing from the bank and how long they must recover the loan, which must be very short.

On the other hand, the current governor of the permit (04/15/2014) advised the government not to borrow from the World Bank and the work pressure on the expenses, which we support, but if they were to borrow and use the loan product in a way that is not squandered it will generate sufficient revenue which uses part of it in the service of the loan. The retrenchment by the government and used efficiently will reduce pressure on the central bank to use reserves to fund government spending.

said the central bank should explain these issues to the public, because the decrease cover the currency will lead to a lack of reserves to cover the currency in circulation (the public and the banks). The determination of the size of reserves by the central bank will impose a restriction upon the issuance of currency. For the whole must meet the government's need for the Iraqi currency, but the central bank as a financial consultant for the state according to its law should be advised government generally about the size of the required cash and inflationary effects.

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