Central Bank of Iraq
Shafq News / As soon as the devaluation of the dinar against the foreign currency, especially the U.S. dollar, came into effect, the popular demand for buying these currencies decreased, causing alarm among the Central Bank of Iraq, which is responsible for issuing the decision, which has provoked popular discontent, as it may have consequences for the middle class and low-income people in society.
The Central Bank of Iraq has decided to raise the selling price of the dollar to banks and exchange companies to 1,460 dinars, from 1,182 dinars per dollar, in order to offset the decline in oil revenues caused by the decline in oil prices.
Iraq relies 90 percent of its income on oil revenues, the last time it devalued the dinar was in December 2015 when it raised the selling price of the dollar to 1,182 dinars from 1,166 dinars previously.
For the third day in a row this week, central bank sales fell by more than 55%.
Exchange rate review
"The fall of the Iraqi dinar against the US dollar and the increase in the exchange rate from 119,000 to 146,000 dinars per 100 dollars caused a rapid decline in the value of sales at the Central Bank in the foreign exchange auction," a finance ministry source told Shafq News.
"The central bank is upset, and in light of this, several proposals have been made to set the exchange rate of the dollar against the Iraqi dinar, including 135,000 for every 100 dollars instead of the current rate," the source said.
The Central Bank launched its decision on the new price to sell the dollar at the currency auction on December 20, and since then, the bank has seen a decline in currency sales.
Dollar's sell-off to unprecedented levels
Economist Abdul Rahman al-Sheikhly said there was a proposal to set the exchange rate for the Iraqi dinar.
"There is a proposal and opinion that the exchange rate should be 127,000 dinars per 100 dollars, with a total of 130,000 dinars to reach the citizen," Sheikhli told Shafq News.
"The central bank was selling $200 million at the currency auction, either now the cash sale price has reached $300,000, because the exchange rate has increased from 119,000 to 146,000 dinars per 100 dollars," he said.
"The Iraqis have no confidence in the banking institution, so they put their money in their homes, and when the dollar crisis became the market and sold the dollar, the demand for the dollar was low compared to the previous period," he said.
Parliament gets on the line.
The Economic and Investment Committee unveils a parliamentary move aimed at reducing the exchange rate of the dollar in the 2021 budget bill, which has reached parliament.
"The proposal from deputies from a different political bloc is to have the new exchange rate (1,300) dinars per dollar," committee member Nada Shaker Joudat told Shafq News.
"The devaluation or increase of the dollar needs political consensus under the dome of the Iraqi parliament, and there will be intensive meetings and dialogues in this regard in the next few days, as the parliamentary majority is refusing to raise the exchange rate of the dollar by this big difference from the previous one," she said.
Iraq is under great pressure under the worst economic crisis since 2003 and so far, with low oil prices and the outbreak of the Coronavirus.
"The devaluation process is a world-renowned economic measure that means that a country lowers the official exchange rate of a country against a global currency reference (US dollar or euro) so that the number of units of foreign currency that can be obtained against a single unit of the national currency is reduced, and is also known as a deliberate regressive adjustment of the official exchange rate, which leads to a devaluation of the currency against other currencies," said economist Raed al-Hashimi.
"Our balance of payments, as is well known, has little export other than oil and the rest tends to be imported because we import everything from the outside from the needle to the plane to stop the industrial and national production in all government and private sectors since 2003, and as a matter of fact, this decision will not fix the balance of payments and will not revive the domestic product," he said.
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