A reading of the Council of Ministers’ decision to limit contracts to dinars.. Will it change the exchange rate or the value of the contracts?[You must be registered and logged in to see this link.] |Today[You must be registered and logged in to see this image.]
Baghdad today - Baghdad
In a step that will not be applied to contracts after the decision of the Council of Ministers, but rather goes beyond its application “retroactively,” the Council of Ministers’ decision came to restrict the state’s contracts with companies, whether foreign or local, to the Iraqi dinar only, and to apply it even to old contracts, in a step that raised questions about its dimensions and effects. Whether on state contracts or on the exchange rate.
The Iraqi government and the Central Bank of Iraq continue to take various decisions and measures in an attempt to control the exchange rate of the dollar against the dinar, in a war that has been going on for 10 months, as exchange rates are witnessing an unprecedented rise due to illegal speculation, as described by the Central Bank of Iraq.
The expert in economic and financial affairs, Nabil Al-Marsoumi, during an interview today, Wednesday (September 27, 2023), with “Baghdad Today”, explained that “the Iraqi government took many steps during the previous period, and is still working on new steps aimed at limiting local dealings to the Iraqi dinar.” Its last decision was to oblige state contracts executed inside Iraq to be in Iraqi dinars.”
He stated that “this step is aimed at ending the “dollarization phenomenon,” that is, restricting all transactions to the local currency. Of course, this matter has any impact on the issue of reducing or rising the price of the dollar in the local market, as this matter depends on the issue of finding solutions in order to work Legal and legitimate transfers to Iran instead of black transfers that are paid through various import funds.”
An attempt to strengthen the dinar
For his part, a member of the Parliamentary Finance Committee, Moin Al-Kadhimi, said in his interview with “Baghdad Al-Youm” that “the Iraqi government wants, through such steps, to strengthen the Iraqi dinar and limit local dealings to the national currency, and this is what strengthens and strengthens the dinar, and this matter is followed and applied in all countries.” "It was accompanied by a strong economy."
Al-Kadhimi stated, “Such a step will certainly contribute to the issue of reducing the exchange rate of the dollar in the local market. Such steps will reduce the need to demand the dollar, since dealing will be in the Iraqi dinar, and therefore the citizen will abandon the dollar as long as dealing is limited to the national currency, and this is the case for companies operating in the sectors.” governmental or private.
A “moral” step, but...does it change the value of the contracts?
Yesterday, Tuesday, the Council of Ministers decided, in a step towards financial and administrative reform, to commit to all state contracts executed inside Iraq being in Iraqi dinars, except for those opened by an external documentary credit, so they will be according to the agreement between the two parties and for the value of the documentary credit only.
While observers believe that this step will lead to an increase in the price of the dollar, based on the fact that the government will pay the dinar to companies, which in turn will look to buy and convert the money into dollars.
However, others underestimate the importance or extent of the impact of the step on the exchange rate, as the state will ultimately pay the dues of these companies and contracting parties in dollars by the Central Bank, as stipulated in the Council of Ministers’ decision, considering that this decision has only a “moral aspect” in favor of the dinar. That is, making the numbers on the contract papers in Iraqi dinars only, but the payment of companies’ dues will be in dollars and by the central bank directly.
Experts believe that this decision will have one negative side when any future change in dollar prices occurs, as the value of projects, especially those implemented for long years, will be valued in dinars according to the current exchange rate, and any change in the exchange rate by the state during the next few years will lead to... Change the cost of projects.
Source: Baghdad Today