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[ltr]Remember when you see Frank26 parade the title of this report as if it agrees with his assertions, the content of the report disagrees with the float saying it would destroy the Iraqi economy. The dinar under that scenario is estimated to lose value settling somewhere at about 5000 dinars to the dollar, so it's a Dopey, Dopey idea. They do talk about raising the exchange rate. Historically when Maliki was PM and there was a raiding of the CBI reserves, the powers that be couldn't proceed in raising the rate at that time. However now Iraq with nearly six times the international standard for reserves the situation has all changed. What you can glean from the report is that a change in the exchange is required and will come forward.[/ltr]
[ltr]Floating the Iraqi dinar A solution to fill the "gap" of its turbulent price against the dollar[/ltr]
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[ltr]2024-05-17 09:10[/ltr]
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[ltr]Shafaq News / The stability of the Iraqi dinar has been facing great challenges for years, as it is witnessing price fluctuations that have not stabilized, especially with the rapid rise of the dollar price and its very slow decline, as well as a gap between what the Central Bank of Iraq determines with what is sold in the parallel market, especially in exchange shops that do not adhere to the instructions of the Central Bank.[/ltr]
[ltr]To avoid the syndrome of "volatility" and "gap" in the price of the Iraqi dinar against foreign currencies, some experts believe that the solution lies in a kind of "surgical" operation of the country's monetary system that may be painful, but it achieves long-term monetary stability for the national currency through "floating".[/ltr]
[ltr]According to the Central Bank, the cash sale price is 1305 dinars per dollar, while the price for remittances abroad is 1310 dinars against the dollar, and the price in the parallel market is about 1450 dinars against the dollar in mid-May, according to local media, while it reached levels of 1600 dinars against the dollar in previous periods.[/ltr]
[ltr]For months, the Iraqi authorities have imposed restrictions in their efforts to control exchange rates, limit all commercial transactions inside the country to Iraqi dinars, and put in place a new mechanism that subjects foreign remittances to further scrutiny.[/ltr]
[ltr]Iraqi economic analysts spoke to Alhurra, some of whom warned against taking a decision that would lead to floating the dinar, while some believe that a centrist policy that suits the Iraqi economy can be adopted based on "floating" and "stabilization" at the same time.[/ltr]
[ltr]Is the policy of floating commensurate with the Iraqi economy?[/ltr]
[ltr]Mazhar Saleh, advisor to the prime minister for financial affairs, believes that floating the currency rate is not suitable for the Iraqi economy, especially since it is "a rentier economy, dominated by foreign currency reserves."[/ltr]
[ltr]"The economic vision that wants to float the Iraqi dinar to end the gap between the official rate and the parallel rate may be possible in an economy where the free market alone influences the balance of payments movement, and not in an economy where the government sector is the dominant rentier and generates foreign currency reserves," he explained in statements to Alhurra.[/ltr]
[ltr]"The monetary authority in Iraq alone is the main source of foreign currency supply that meets the desired demand for foreign exchange in the local market," he said.[/ltr]
[ltr]Saleh believes that the demands for floating inevitably mean "the adoption of the prevailing exchange rate in the parallel market, to achieve the goal of stability and balance in the official exchange rate itself at a new point of exchange reached by the market at the end of the supposed floating policy and a return to stability again."[/ltr]
[ltr]The floating scenario also means "the withdrawal of the monetary authority as the main central bidder of foreign currency, replaced by new forces of free market makers, which certainly have only a limited weak supply of foreign exchange," Saleh said.[/ltr]
[ltr]He pointed out that these forces carry "an uncontrolled package of inflationary expectations, and are called in the economic literature (forces generating inflationary expectations), which will give the dominance of supply forces from speculators" who possess limited amounts of foreign exchange, offset by "open demand for foreign currency from the market," which exceeds the proposal by "at least more than ten times in our estimation."[/ltr]
[ltr]Saleh described this policy as "uncontrollable", as long as "the central government supply of foreign currency will be absent from the market, we will not get any equilibrium point in the exchange rate that the float is looking for except with a wide deterioration of the exchange rate as long as it is carried out by forces that generate inflationary expectations in a very unilateral rentier economy."[/ltr]
[ltr]He warns that the movement of the exchange rate in "an incomplete market, in terms of productivity, in compensating for the required supply of goods and services," no one "will know how much the new exchange rate caused by the float will reach," which will be accompanied by "a prior wave of inflationary expectations", whose trends are difficult to control, which may push monetary policymakers to "intervene with superior foreign reserves and unjustified waste of foreign exchange to impose a state of stability."[/ltr]
[ltr]According to the World Bank, Iraq has 145 billion barrels of proven oil reserves, which is among the largest crude oil reserves in the world.[/ltr]
[ltr]But Iraq hopes the country's oil reserves will exceed 160 billion barrels, Oil Minister Hayyan Abdul Ghani recently announced.[/ltr]
[ltr]What if the Iraqi dinar is floated?[/ltr]
[ltr]The demands that have been appearing every period for years calling for floating the exchange rate of the Iraqi dinar are "strange", and most of them come from people "who are not specialized in economics or monetary policy," according to Abdul Rahman al-Mashhadani, a professor of international economic relations, told Alhurra.[/ltr]
[ltr]"Iraq cannot proceed with floating the exchange rate of the dinar, as evidenced by all the agreements concluded with the International Monetary Fund since 2004, and the reviews praised the fixation of the exchange rate by the Central Bank of Iraq," he said.[/ltr]
[ltr]Mashhadani added that there was a study from experts at the World Bank during the past years that recommended "raising the exchange rate", noting that even so, "these recommendations cannot be taken into account because the World Bank is concerned with economic development, but the follow-up to the recommendations for monetary policies is taken if they are from the International Monetary Fund".[/ltr]
[ltr]In its latest review on Thursday, the International Monetary Fund praised the Central Bank of Iraq's efforts to tighten monetary policy and strengthen its liquidity management framework.[/ltr]
[ltr]He explains that "the real gap in the wheel of production in the Iraqi economy, as the majority of goods are imported from abroad, which means that the float will cause a spiral in price rates to become significantly high and affect the marginalized classes," noting that such a decision cannot be taken from "the door of monetary policy" only, as it must "look at the burdens it will impose on citizens."[/ltr]
[ltr]Al-Mashhadani stressed that what has been applied in other Arab countries does not "mean that it can be applied to the Iraqi economy," adding that "the exchange rate is likely to become at levels of 5,000 dinars against the dollar," as "the Central Bank lost control over exchange rates, leaving them to float."[/ltr]
[ltr]He feared that the "float" would cause "social" problems, as "salaries will erode significantly", which may threaten to "slide new classes into poverty", while "a class of merchants, politicians and businessmen, who will benefit from the instability that will result from this matter", will benefit.[/ltr]
[ltr]Mashhadani agrees that floating ultimately means "the parallel market will control exchange rates," but it will not achieve the "desired monetary stability," as the central bank will then need to "print more local currency to keep up with market demand," and the government will need to increase salaries and social assistance packages.[/ltr]
[ltr]The adviser to the Iraqi government, Saleh, attributed the reason and quality of the "gap" in the exchange rates of the dinar against the dollar between the official and parallel market to "external factors imposed by the compliance platform and auditing administrative restrictions on external transfer movements, which is not related to the deficit of the reserves of the monetary authority," noting that Iraq's foreign currency reserves are the highest in the country's history, as it touches the levels of import coverage for 16 months, compared to the global scale, which does not exceed the coverage of imports of three months.[/ltr]
[ltr]Dollar remittances through official channels have risen significantly in Iraq, as Iraq continues its reforms of the financial sector in line with international standards, according to a previous report by AFP.[/ltr]
[ltr]In late 2022, Iraq's banking sector adopted the SWIFT electronic transfer system to better monitor dollar use, ensure compliance with U.S. sanctions on Tehran, and limit the informal economy's prosperity.[/ltr]
[ltr]The fiscal standards adopted encouraged the emergence of a parallel currency market to attract those seeking dollars outside official channels.[/ltr]
[ltr]Saleh pointed out that there is a distortion in the subsidies on the prices of some commodities "on the part of fiscal policy, which is a support in which the rich and poor are mostly enjoyed alike without discrimination, and represents real added income that is not intangible, and is the product of an inherited fiscal policy of the state of consumer welfare of the rentier resource".[/ltr]
[ltr]"It is inconceivable that 90% of Iraq's population receives subsidies for foodstuffs provided by the state as an extension of the ninetieth economic blockade in light of changing living standards and lifestyle, the rise in the number of well-to-do people and the growing middle class," he said.[/ltr]
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[ltr]Floating the Iraqi dinar A solution to fill the "gap" of its turbulent price against the dollar[/ltr]
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[ltr]2024-05-17 09:10[/ltr]
[ltr]Share[/ltr]
[ltr]Font[/ltr]
[ltr]Shafaq News / The stability of the Iraqi dinar has been facing great challenges for years, as it is witnessing price fluctuations that have not stabilized, especially with the rapid rise of the dollar price and its very slow decline, as well as a gap between what the Central Bank of Iraq determines with what is sold in the parallel market, especially in exchange shops that do not adhere to the instructions of the Central Bank.[/ltr]
[ltr]To avoid the syndrome of "volatility" and "gap" in the price of the Iraqi dinar against foreign currencies, some experts believe that the solution lies in a kind of "surgical" operation of the country's monetary system that may be painful, but it achieves long-term monetary stability for the national currency through "floating".[/ltr]
[ltr]According to the Central Bank, the cash sale price is 1305 dinars per dollar, while the price for remittances abroad is 1310 dinars against the dollar, and the price in the parallel market is about 1450 dinars against the dollar in mid-May, according to local media, while it reached levels of 1600 dinars against the dollar in previous periods.[/ltr]
[ltr]For months, the Iraqi authorities have imposed restrictions in their efforts to control exchange rates, limit all commercial transactions inside the country to Iraqi dinars, and put in place a new mechanism that subjects foreign remittances to further scrutiny.[/ltr]
[ltr]Iraqi economic analysts spoke to Alhurra, some of whom warned against taking a decision that would lead to floating the dinar, while some believe that a centrist policy that suits the Iraqi economy can be adopted based on "floating" and "stabilization" at the same time.[/ltr]
[ltr]Is the policy of floating commensurate with the Iraqi economy?[/ltr]
[ltr]Mazhar Saleh, advisor to the prime minister for financial affairs, believes that floating the currency rate is not suitable for the Iraqi economy, especially since it is "a rentier economy, dominated by foreign currency reserves."[/ltr]
[ltr]"The economic vision that wants to float the Iraqi dinar to end the gap between the official rate and the parallel rate may be possible in an economy where the free market alone influences the balance of payments movement, and not in an economy where the government sector is the dominant rentier and generates foreign currency reserves," he explained in statements to Alhurra.[/ltr]
[ltr]"The monetary authority in Iraq alone is the main source of foreign currency supply that meets the desired demand for foreign exchange in the local market," he said.[/ltr]
[ltr]Saleh believes that the demands for floating inevitably mean "the adoption of the prevailing exchange rate in the parallel market, to achieve the goal of stability and balance in the official exchange rate itself at a new point of exchange reached by the market at the end of the supposed floating policy and a return to stability again."[/ltr]
[ltr]The floating scenario also means "the withdrawal of the monetary authority as the main central bidder of foreign currency, replaced by new forces of free market makers, which certainly have only a limited weak supply of foreign exchange," Saleh said.[/ltr]
[ltr]He pointed out that these forces carry "an uncontrolled package of inflationary expectations, and are called in the economic literature (forces generating inflationary expectations), which will give the dominance of supply forces from speculators" who possess limited amounts of foreign exchange, offset by "open demand for foreign currency from the market," which exceeds the proposal by "at least more than ten times in our estimation."[/ltr]
[ltr]Saleh described this policy as "uncontrollable", as long as "the central government supply of foreign currency will be absent from the market, we will not get any equilibrium point in the exchange rate that the float is looking for except with a wide deterioration of the exchange rate as long as it is carried out by forces that generate inflationary expectations in a very unilateral rentier economy."[/ltr]
[ltr]He warns that the movement of the exchange rate in "an incomplete market, in terms of productivity, in compensating for the required supply of goods and services," no one "will know how much the new exchange rate caused by the float will reach," which will be accompanied by "a prior wave of inflationary expectations", whose trends are difficult to control, which may push monetary policymakers to "intervene with superior foreign reserves and unjustified waste of foreign exchange to impose a state of stability."[/ltr]
[ltr]According to the World Bank, Iraq has 145 billion barrels of proven oil reserves, which is among the largest crude oil reserves in the world.[/ltr]
[ltr]But Iraq hopes the country's oil reserves will exceed 160 billion barrels, Oil Minister Hayyan Abdul Ghani recently announced.[/ltr]
[ltr]What if the Iraqi dinar is floated?[/ltr]
[ltr]The demands that have been appearing every period for years calling for floating the exchange rate of the Iraqi dinar are "strange", and most of them come from people "who are not specialized in economics or monetary policy," according to Abdul Rahman al-Mashhadani, a professor of international economic relations, told Alhurra.[/ltr]
[ltr]"Iraq cannot proceed with floating the exchange rate of the dinar, as evidenced by all the agreements concluded with the International Monetary Fund since 2004, and the reviews praised the fixation of the exchange rate by the Central Bank of Iraq," he said.[/ltr]
[ltr]Mashhadani added that there was a study from experts at the World Bank during the past years that recommended "raising the exchange rate", noting that even so, "these recommendations cannot be taken into account because the World Bank is concerned with economic development, but the follow-up to the recommendations for monetary policies is taken if they are from the International Monetary Fund".[/ltr]
[ltr]In its latest review on Thursday, the International Monetary Fund praised the Central Bank of Iraq's efforts to tighten monetary policy and strengthen its liquidity management framework.[/ltr]
[ltr]He explains that "the real gap in the wheel of production in the Iraqi economy, as the majority of goods are imported from abroad, which means that the float will cause a spiral in price rates to become significantly high and affect the marginalized classes," noting that such a decision cannot be taken from "the door of monetary policy" only, as it must "look at the burdens it will impose on citizens."[/ltr]
[ltr]Al-Mashhadani stressed that what has been applied in other Arab countries does not "mean that it can be applied to the Iraqi economy," adding that "the exchange rate is likely to become at levels of 5,000 dinars against the dollar," as "the Central Bank lost control over exchange rates, leaving them to float."[/ltr]
[ltr]He feared that the "float" would cause "social" problems, as "salaries will erode significantly", which may threaten to "slide new classes into poverty", while "a class of merchants, politicians and businessmen, who will benefit from the instability that will result from this matter", will benefit.[/ltr]
[ltr]Mashhadani agrees that floating ultimately means "the parallel market will control exchange rates," but it will not achieve the "desired monetary stability," as the central bank will then need to "print more local currency to keep up with market demand," and the government will need to increase salaries and social assistance packages.[/ltr]
[ltr]The adviser to the Iraqi government, Saleh, attributed the reason and quality of the "gap" in the exchange rates of the dinar against the dollar between the official and parallel market to "external factors imposed by the compliance platform and auditing administrative restrictions on external transfer movements, which is not related to the deficit of the reserves of the monetary authority," noting that Iraq's foreign currency reserves are the highest in the country's history, as it touches the levels of import coverage for 16 months, compared to the global scale, which does not exceed the coverage of imports of three months.[/ltr]
[ltr]Dollar remittances through official channels have risen significantly in Iraq, as Iraq continues its reforms of the financial sector in line with international standards, according to a previous report by AFP.[/ltr]
[ltr]In late 2022, Iraq's banking sector adopted the SWIFT electronic transfer system to better monitor dollar use, ensure compliance with U.S. sanctions on Tehran, and limit the informal economy's prosperity.[/ltr]
[ltr]The fiscal standards adopted encouraged the emergence of a parallel currency market to attract those seeking dollars outside official channels.[/ltr]
[ltr]Saleh pointed out that there is a distortion in the subsidies on the prices of some commodities "on the part of fiscal policy, which is a support in which the rich and poor are mostly enjoyed alike without discrimination, and represents real added income that is not intangible, and is the product of an inherited fiscal policy of the state of consumer welfare of the rentier resource".[/ltr]
[ltr]"It is inconceivable that 90% of Iraq's population receives subsidies for foodstuffs provided by the state as an extension of the ninetieth economic blockade in light of changing living standards and lifestyle, the rise in the number of well-to-do people and the growing middle class," he said.[/ltr]
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clearly since he is a person who sells the currency there is no way he could have innocently made such a mistake. No, he was counting on the gullibility of those following him. I do not follow his stuff, but I learned of it a day and a half later and I called him out on it. Within an hour of that moment, he did his famous Mea Culpa but tried to also say his float idea is true. The only truth to that is that the uneducated people in Iraq [boots on the ground] hear this story regularly. The reality though is the IMF since 2004 
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