The Iraqi Central Bank and the Iraqi Dinar
What are the dangers facing the Iraqi dinar? What has the Iraqi Central Bank (ICB) been doing to stabilize the value of the unstable Iraqi dinar? What has Kurdistan got to do with all of this?
It seems to be an economic peril that the value of the Iraqi Dinar has fallen considerably compared with the US dollar.
What are the reasons behind this?
The huge drop in the price of crude oil to around $55 for light crude oil, and the recent gains in the US dollar currency, coupled with the recent political situation in the fight against the Islamic State are some of the main factors that have led to the fall in the value of the Iraqi Dinar.
It is estimated that the ICB has reserves in excess of $60 billion dollars.
In order to maintain the stability of the Iraqi dinar currency, the ICB has been putting large sums of US dollars into the Iraqi market so that by increasing the supply of the dollar its value would become lower; inversely the value of the Iraqi Dinar would go up.
A simple supply and demand law!
The stability of an economy depends on the stability of its currency. That's what seems to justify the ICB continuing to hold big reserves of US dollar currency at a time of economic woes.
Until this moment, the Kurdistan Region is using the Iraqi Dinar as its currency in addition to the US dollar as a secondary currency.
Therefore, the stability of the Kurdistan economy depends on the stability of the Iraqi Dinar.
One remembers with some worry the collapse of the German economy shortly after the First World War when the German currency fell drastically in value.
The Weimar Republic government printed paper money in big amounts and as a result inflation rates in Germany catapulted, ultimately leading to the collapse of the German economy and hyper inflation which paved the way for the Nazi Government to take over and enforce a command economy.
Such an example shows what happens to an economy if preventative measures are not enforced during a time of crisis especially the one that is facing Iraq and the Middle East at the moment.
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