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Restricting cash reserves
Economical 11/06/2023
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Yasser Al-Metwally
In order to distinguish between the advantages (benefits) and disadvantages (risks) of the cash reserve, we must understand the simplified definition of it, which means (all the foreign currencies that countries own and keep in their central banks).
Among the benefits of these currencies (cash reserves in foreign currency) is using them to finance their foreign trade first, and then to pay their debts second, and also more importantly, maintaining the stability of their local currencies, and third, dealing with financial crises and monetary inflation.
As for its risks, it is determined by restricting it (restricting its use by the countries that own it (i.e., exporting it).
We offer this simplified definition to those who do not know the importance of monetary reserves and their impact on economies, especially those who confuse monetary policy with useless statements, and of course those who are not specialists in economics and its risks.
There is no doubt that the dollar is still the strongest currency in the world despite all attempts to find a competitive alternative to it. The United States of America accounts for nearly a quarter of the global gross domestic product, which makes it the largest and strongest economic power in the world.
What adds to this strength is that it has the largest financial institutions and banks in the world, and that most of the global trade financing between countries is denominated in dollars, especially oil wealth, and dollar transactions constitute approximately 70 percent compared to other currencies combined.
Perhaps the weapon of sanctions that America imposes on countries that oppose its policy is through restricting its monetary reserve and not allowing it to use it. The two closest examples of this are Russia because of its war with Ukraine and before that Iran because of the failure to resolve the nuclear file between them. Notice the size of the impact of restricting the use of its foreign exchange reserve. What an impact? In their economic problems, especially the collapse of the local currency of the two countries, albeit at different rates.
Here, most of the countries that were dissatisfied with the strict American policy of using the dollar as a weapon to undermine their economies turned to the BRICS group in the hope that it would be able to mitigate the effects of the dollar. Returning to Russia and Iran, the reason for their resistance to the dollar sanctions is that they possess solid economic bases that allow them to endure for longer periods of time because they possess solid production bases.
The question is: Is the Iraqi economy able to endure if America decides to restrict its monetary reserves?
The Iraqi economy depends on imports for everything and does not have a solid production base, whether industrial or agricultural. Other than that, our cash reserves are subject to old decisions in the hands of America. We do not want to delve into the merits of the decisions and their effects. Rather, we only draw the attention of some gentlemen from the legislative and executive sectors. Do not put more pressure on the Central Bank, let it act in the language of approved monetary policy. In countries of the world, which are based on previously agreed upon international standards.
The chaos of statements makes matters worse, confuses the market, and pushes for wrong decisions, thus paving the way for specialists to deal with the dollar problem to find the appropriate solution.
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