[size=39]"The Snake and the Ladder"... Specialists warn of the Iraqi government's decision to raise the value of the dinar
Free - Washington
February 08, 2023
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[url=https://media.voltron.alhurra.com/Drupal/01live-106/styles/sourced/s3/2023-02/000_32ZV48U %281%29.jpg?itok=cbFjgok1]The price of the dinar against the dollar has undergone several changes recently, due to international banking compliance measures.[/url]
Free - Washington
February 08, 2023
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[url=https://media.voltron.alhurra.com/Drupal/01live-106/styles/sourced/s3/2023-02/000_32ZV48U %281%29.jpg?itok=cbFjgok1]The price of the dinar against the dollar has undergone several changes recently, due to international banking compliance measures.[/url]
Dollar prices in the local Iraqi market decreased hours after the Iraqi government decided to reduce the price of the US currency against the Iraqi dinar from 1,450 dinars to 1,300.
According to the decision, the Central Bank of Iraq will sell dollars at the new official rates to buyers.
The bank said in a statement that it will start selling at the new price, starting from Wednesday, the eighth of February.
The bank set a price of 1,300 dinars to buy the dollar from the Ministry of Finance, 1,310 dinars to sell it to banks through the “electronic platform,” and 1,320 dinars to sell it to the “ultimate beneficiary.”
However, the price of the dollar in the Iraqi parallel market remained at the threshold of 1,400 dollars for purchase, and 1,550 for sale until the closing hour of the market on Tuesday afternoon, according to the owner of an exchange company who spoke to Al-Hurra.
In the past days, the price of the dollar touched the edge of 1,700 dinars per dollar after the imposition of compliance measures that restricted bank transfers to Iraq.
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The instability of the Iraqi dinar exchange rate against the dollar. archival
Saleh added that the decision is a pattern of "tight monetary policy to fight inflation and combat inflationary activities generated by incomplete markets."
According to Saleh, the inflation of foreign reserves at the Central Bank to reach $115 billion enabled the bank to intervene with an important policy package, foremost of which is addressing the function of inflationary expectations that the parallel exchange market has become generating.
And he continued, "The decision to adjust the exchange rate of the Iraqi dinar against the dollar also came in line with the positive rise currently taking place in the value of the current account of the Iraqi balance of payments relative to the gross domestic product, which prompted monetary policy to the need to adjust the course of the exchange rate, raise the external value of the Iraqi dinar, and curb inflationary pressures." .
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The Iraqi dinar has lost 25 percent of its value during recent market volatility
Salem added to Al-Hurra that the government of Mr. Al-Kazemi made one dollar equal to 1460 dinars, and the government of Mr. Al-Sudani came and made one dollar equal to 1300 dinars, and no one told us why 1460 at the time, and no one told us why 1300 now.
Salem warned against "manipulating the exchange rate," and said that there would be "serious consequences" from that.
The economics professor called for "controlling the real causes and precursors to all this chaos instead of chasing the results and phenomena that follow."
He asked, "If the state is not able to defend the price of 1460 dinars against the dollar, and the price of the dollar in the market has become 1700 dinars to the dollar, then how will it be able to defend the price of 1300 dinars against the dollar, and how much will the difference be in the market between the two prices?"
He continued, "If the previous government justified raising the exchange rate of the dollar against the dinar to the deficit in financing the salaries of employees (and retirees and social welfare) at the time, then these allocations have now increased based on the government program. Where will the current government come from, through which they can bridge the deficit between The Ministry of Finance sold the dollar to the Central Bank at a price of 1460 dinars, and between selling it now at a price of 1300 dinars.
[You must be registered and logged in to see this link.] Economics agency says that Iraq is facing a scarcity of dollars, which is causing the dinar to weaken on the black market.
And she adds, "Reassessment will not solve the problem, as it does not change the supply of dollars entering the market. Instead, it increases Iraq's dependence on oil, especially when combined with increased government spending."
And Agence France-Presse quoted the Iraqi economist, Bariq Schober, warning that the improvement is "temporary," and pointed to the decline in demand, as "dollar buyers are waiting to obtain the dollar at a lower price from the central bank."
He told AFP that "radical solutions" such as allowing only imports through formal lines of credit or stricter controls on money transfer agencies were needed to resolve the crisis.
For Iraq, adopting tougher regulatory measures means more transparency, tackling money laundering, and helping enforce international sanctions, such as those imposed on Iran and Russia, says AFP.
Iraq, the second largest producer in OPEC, was under pressure from the United States to limit the flow of funds to neighboring Iran, as the Federal Reserve Board in New York last November imposed stricter restrictions on dollar transactions by Iraqi commercial banks.
These measures contributed to a dollar shortage in Iraq, led to a drop in the dinar and fueled inflation, prompting the prime minister to replace the central bank governor, Mustafa Ghaleb Makhaif.
The Iraqi foreign minister, along with acting central bank governor Ali Al-Alaq, is scheduled to visit Washington to discuss issues including newly applied standards for US dollar transfers, Al-Sudani said last month in an interview with the state-run Al-Iraqiya TV.
[You must be registered and logged in to see this link.]
According to the decision, the Central Bank of Iraq will sell dollars at the new official rates to buyers.
The bank said in a statement that it will start selling at the new price, starting from Wednesday, the eighth of February.
The bank set a price of 1,300 dinars to buy the dollar from the Ministry of Finance, 1,310 dinars to sell it to banks through the “electronic platform,” and 1,320 dinars to sell it to the “ultimate beneficiary.”
However, the price of the dollar in the Iraqi parallel market remained at the threshold of 1,400 dollars for purchase, and 1,550 for sale until the closing hour of the market on Tuesday afternoon, according to the owner of an exchange company who spoke to Al-Hurra.
In the past days, the price of the dollar touched the edge of 1,700 dinars per dollar after the imposition of compliance measures that restricted bank transfers to Iraq.
[url=https://media.voltron.alhurra.com/Drupal/01live-106/styles/sourced/s3/2022-12/2012-10-03T120000Z_266337207_GM1E8A31IOZ01_RTRMADP_3_IRAQ-ECONOMY-DINAR %281%29.jpg?itok=vMxc-RiH][You must be registered and logged in to see this image.][/url]
The instability of the Iraqi dinar exchange rate against the dollar. archival
Reasons for the decision
The financial advisor to the Iraqi Prime Minister, Mazhar Muhammad Salih, says that reducing the price of the Iraqi dinar to 1450 against the dollar did not "achieve its development goals," adding to "Al-Hurra" that the decision came "after harsh years of monetary adjustment in which the Central Bank, since 2020, provided monetary means All to support public finances without the fiscal policy itself showing any financial adjustment in maximizing non-oil revenues or reducing the area of double-decimal unemployment or high levels of poverty through public spending. Rather, public finance resorted to maximizing domestic borrowing, bringing the total domestic debt to nearly fifty billion dollars. The central bank replaced it by monetizing the public debt.Saleh added that the decision is a pattern of "tight monetary policy to fight inflation and combat inflationary activities generated by incomplete markets."
According to Saleh, the inflation of foreign reserves at the Central Bank to reach $115 billion enabled the bank to intervene with an important policy package, foremost of which is addressing the function of inflationary expectations that the parallel exchange market has become generating.
And he continued, "The decision to adjust the exchange rate of the Iraqi dinar against the dollar also came in line with the positive rise currently taking place in the value of the current account of the Iraqi balance of payments relative to the gross domestic product, which prompted monetary policy to the need to adjust the course of the exchange rate, raise the external value of the Iraqi dinar, and curb inflationary pressures." .
[You must be registered and logged in to see this link.]
The Iraqi dinar has lost 25 percent of its value during recent market volatility
Snake and ladder
Says Professor of Economics at Al-Mustansiriya University d. Emad Abdel Latif Salem said, "Numbers are not used in economics, as they are used in the 'Snake and Ladder' game."Salem added to Al-Hurra that the government of Mr. Al-Kazemi made one dollar equal to 1460 dinars, and the government of Mr. Al-Sudani came and made one dollar equal to 1300 dinars, and no one told us why 1460 at the time, and no one told us why 1300 now.
Salem warned against "manipulating the exchange rate," and said that there would be "serious consequences" from that.
The economics professor called for "controlling the real causes and precursors to all this chaos instead of chasing the results and phenomena that follow."
He asked, "If the state is not able to defend the price of 1460 dinars against the dollar, and the price of the dollar in the market has become 1700 dinars to the dollar, then how will it be able to defend the price of 1300 dinars against the dollar, and how much will the difference be in the market between the two prices?"
He continued, "If the previous government justified raising the exchange rate of the dollar against the dinar to the deficit in financing the salaries of employees (and retirees and social welfare) at the time, then these allocations have now increased based on the government program. Where will the current government come from, through which they can bridge the deficit between The Ministry of Finance sold the dollar to the Central Bank at a price of 1460 dinars, and between selling it now at a price of 1300 dinars.
[You must be registered and logged in to see this link.] Economics agency says that Iraq is facing a scarcity of dollars, which is causing the dinar to weaken on the black market.
And she adds, "Reassessment will not solve the problem, as it does not change the supply of dollars entering the market. Instead, it increases Iraq's dependence on oil, especially when combined with increased government spending."
And Agence France-Presse quoted the Iraqi economist, Bariq Schober, warning that the improvement is "temporary," and pointed to the decline in demand, as "dollar buyers are waiting to obtain the dollar at a lower price from the central bank."
He told AFP that "radical solutions" such as allowing only imports through formal lines of credit or stricter controls on money transfer agencies were needed to resolve the crisis.
For Iraq, adopting tougher regulatory measures means more transparency, tackling money laundering, and helping enforce international sanctions, such as those imposed on Iran and Russia, says AFP.
Iraq, the second largest producer in OPEC, was under pressure from the United States to limit the flow of funds to neighboring Iran, as the Federal Reserve Board in New York last November imposed stricter restrictions on dollar transactions by Iraqi commercial banks.
These measures contributed to a dollar shortage in Iraq, led to a drop in the dinar and fueled inflation, prompting the prime minister to replace the central bank governor, Mustafa Ghaleb Makhaif.
The Iraqi foreign minister, along with acting central bank governor Ali Al-Alaq, is scheduled to visit Washington to discuss issues including newly applied standards for US dollar transfers, Al-Sudani said last month in an interview with the state-run Al-Iraqiya TV.
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