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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

Many Topics Including The Oldest Dinar Community. Copyright © 2006-2020


    Dollar-Dinar Exchange Rate Gap: Causes and Treatments

    Rocky
    Rocky
    Rocky
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    • Post n°1

    Dollar-Dinar Exchange Rate Gap: Causes and Treatments Empty Dollar-Dinar Exchange Rate Gap: Causes and Treatments

    Post by Rocky Today at 4:30 am

    Dollar-Dinar Exchange Rate Gap: Causes and Treatments

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    [rtl]Iraq relies in its monetary policy to monitor the change in the value of its dinar against the dollar on a fixed exchange rate peg system. The overall policy aims to reduce the gap between the official and actual exchange rates and stabilize it close to the target exchange rate, curbing inflation, stimulating markets, commercial, financial and investment transactions, and stimulating growth. Therefore, reducing the exchange gap at the target exchange rate level is one of the prominent issues facing the economic policy maker in Iraq in order to limit the major repercussions that go beyond the economic scope and crystallize significantly in the social stability of the country. This gap becomes more evident through the variation in the dollar exchange rates and the fluctuation of the real value of the dinar. Either positively, it generates revenue, or negatively, it generates additional costs that cause repercussions on purchasing power without taking individuals and economic units into account, negatively affecting local and foreign savings and investment. The more the gap varies, the greater the economic cost of investment and the higher the levels of inflation, which increases the suffering of the limited-income family sector.[/rtl]
    [rtl]It has become known that the size of the Iraqi economy's GDP depends very heavily on the oil dollar, which is the main source of the Ministry of Finance's resources, instead of the non-oil dollar, which is called the non-oil export dollar, which has very low flexibility, resulting in a sharp decline in credit deposits in the accounts of traders exporting goods in Iraqi banks in exporting countries. This dependence exposes the exchange gap to fluctuations in the global oil market. When global oil prices rise, we witness a decrease in the exchange gap due to the increase in the supply of the dollar, while in contrast, during periods of economic recession or when oil prices fall, the gap increases significantly when the government is unable to provide an adequate supply of dollars in the official window for buying and selling dollars. In such cases, traders are forced to search for alternatives through the parallel market, which exacerbates price pressures on the weakest groups.[/rtl]
    [rtl]Referring to the reasons that widened the exchange gap, they are multiple. In addition to what was mentioned above, the reasons can be traced according to the axis of indirect reasons that are linked to the country's trade policy and the problems of border crossings related to dollar smuggling, including those related to activating the role of crossings as an authentic source of revenue. There are also indirect reasons that have a political and security nature and medium- and long-term repercussions on the movement of money and investment.[/rtl]
    [rtl]While economic and monetary reasons stand out at the forefront of direct or technical reasons, some of them are related to the nature of the banking system and the extent of its credit capacity and the level of banking compliance with the monetary and credit conditions of the Federal Reserve, which affects the levels of supply of the petrodollar. Therefore, we find that many international banks refuse to work as correspondent banks due to the low credit rating of our banking system as a result of smuggling operations, money laundering and sanctions that affect a third of Iraqi banks. Therefore, we find that they do not stand up in this regard, except for banks that have external partnerships with Arab banking capital. They derive international acceptance from the quality of the credit rating of those countries, which facilitates the process of opening accounts with correspondent banks. Therefore, there is fear that pressures on the dollar exchange rate will increase, widening the gap.[/rtl]
    [rtl]It is also noted that among the technical reasons that led to the widening of the gap are the successive changes in the official exchange rate threshold taken by successive government administrations. The gap witnessed a transition at the end of 2020 from the stable situation in which the gap between the official exchange rate of 0.118 dinars per dollar and the actual exchange rate of 1,200 dinars narrowed, to raise the threshold in 2021 to 1,450 due to the decision of the Central Bank at the time. Then the threshold rose this time after the Council of Ministers approved in February 2023 the decision of the Board of Directors of the Central Bank of Iraq to amend the official exchange rate of the dollar against the dinar, to the threshold of 1,300 dinars per dollar.[/rtl]
    [rtl]By following the parallel dollar exchange rate in November of this year 2024, we find that it has reached the limits of 1500 dinars per dollar and exceeded it, and that the Central Bank’s selling price for cash dollars, transfers, documentary credits, and international settlements for electronic cards is at the threshold of 1300 dinars per dollar. Therefore, it is concluded that the gap in the dollar exchange rate against the dinar is still widening despite the pressures of the Federal Reserve and the Central Bank’s efforts towards compliance.[/rtl]
    [rtl]Therefore, dealing with the gap between official and actual spending should require comprehensive, integrated policies that target technical and non-technical treatments within medium- and long-term planning, the most important of which are:[/rtl]
    [rtl]Reforming the structure of the banking system, developing its efficiency, and raising the levels of its credit capacity and the flexibility of its banking compliance.[/rtl]
    [rtl]Developing tools for targeting inflation and exchange rates, which would help reduce the exchange gap and achieve price stability.[/rtl]
    [rtl]Implementing solid reforms in the financial and monetary sectors to enhance the flexibility of banking performance in accordance with the SWIFT global financial settlement system.[/rtl]
    [rtl]Coordination between fiscal and monetary policies to achieve the target exchange rate by rationalizing government spending and tightening control over the money supply.[/rtl]
    [rtl]Economic policy should enhance transparency in all financial and banking operations, by implementing clear and strict control systems to contain opportunities for corruption and exploitation of the exchange gap.[/rtl]
    [rtl]Deepening the mechanisms of border control and combating administrative corruption to increase total revenue.[/rtl]
    [rtl]Government authorities must maintain and enhance security and political stability to contribute to building confidence between local and foreign investors on the one hand and the investment environment on the other, which will stimulate further stability and growth.[/rtl]
    [rtl]Formulating an economic policy that targets technical solutions to expand the non-oil production base, and serious planning on how to diversify sources of income for the overall economy. The path of developing the agricultural and industrial sectors will be the decisive factor in reducing imports and stimulating the growth of fixed capital accumulation for the private sector. Hence, the demand for the dollar for consumer import purposes will decrease.[/rtl]


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