Shibibi - Central Bank current problems as a result of the loss of independence

by Lobo Sun 14 Jun 2015, 6:16 pm

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Shibibi - Central Bank current problems as a result of the loss of independence

by Lobo Sun 14 Jun 2015, 6:16 pm

[size=33]Central Bank current problems as a result of the loss of independence[/size]

[size=33]Sinan Mohammed Rida al-Shibibi [/size]

Iraqi money market live in the present state of instability was the collapse of the market rate of the dinar, which amounted to 1340 dinars to the US dollar while the official price of about 1190 dinars to the dollar, although the size of the reserve is still great, which is considered a key factor in the stability of the currency.

The reason is due to this difference between the two prices to enter ministries (Finance) and other parties (House of Representatives) and Amlaihm policies and terms were not unrelated to monetary policy, and not the central bank's ability to defend his advisers about the bank by law.

The problem at present is that students have to pay a conversion secretariat equivalent to a certain percentage of taxes and customs when buying the dollar and at the request of the Ministry of Finance, and this is an important factor in the rise in the dollar price. These conditions have served the Ministry of Finance, but the principle that the purchase of foreign currency and selling it must be done fast and smooth and without any obstacles (except banking conditions and a commitment to capital) because the rapid movement of cash, and if there is a need for the central bank to take advantage of foreign currency sale for development was better to use it in Ttaiwiramlah bank credit, if given preference in the auction of the bank, who leads in the banking its credit.

So there is the intervention of the Ministry of Finance in the work of the central bank. This intervention is designed to collect the financial resources of the Ministry of nothing to do with monetary policy, although the central bank is that the collection of these resources. In other words, the central bank is the one who collects these resources for the Ministry of Finance. As the budget included the central bank to buy Treasury bonds and remittances to $ 6 billion and reduce the percentage of legal reserve held by banks at the Central Bank in half to provide budget resources. The seriousness of these measures GOES to reduce the effectiveness of monetary policy in the fight against inflation. Therefore, on the fiscal and monetary authorities to assess what you get compared to inflation of resources and instability, which can be a cause for the collapse in the real rate of the dinar.

Also restrict the sale by the House of Representatives means interference in the work of Parliament's central bank. Common among among economists and parliamentarians that the central bank continued to the House of Representatives, and this is a big mistake of the Central Bank is responsible to the House of Representatives and not subordinate to him, and here the Central Bank is no different from the rest of the ministries, but this responsibility (the responsibility of the central bank) explicitly mentioned in the Constitution.

Thus, the central bank has lost its independence and became a bow to the decisions of the government and parliament. The style is the right to put forward ideas as proposals in the House of Representatives and then be voted upon.

The government and parliament policies, and particularly in determining sales, led to a duplication of the exchange rate deceived enriched black market and some of them used by others in other funding terrorism may be one of them.

Loss of autonomy has several caveats most important that the central bank will be subject to the instructions of the government, which will be reflected in the Bank's policies and therefore, the central bank will not be able to adopt the goal of reducing inflation in earnest. To make matters worse, that government spending is inherently inflationary result of the delay in the implementation of projects.

And loss of independence would lead to the creditors to look to the central bank's money as government funds, becomes a target for creditors, and this is an important issue should be discussed with creditors and lawyers Iraq.

The loss of independence means that the central bank to adopt monetary policies in line with the policy of the government, but the government's policies may not fit with the Central Bank Law. In other words, it does not focus on the fight against inflation does not give due importance to the goal of economic stability.

The imposition of a financial nature policies on the central bank should be the subject of study and coordination by government and parliamentary bodies. The central bank has weakened administratively from the government, and often tried to governments to impose its policies on the central bank, including the former prime minister tried to borrow from the central bank which was rejected because the bank law prevents him from it, and ended up the attack on the central bank and the arrest of many of the finest staff .

One manifestation of overtaking on independence is to waive it on the Central Bank reserves. Some repeating that this could be justified because the reserve exceeds the currency in circulation and in bank one and a half times. These justifications for the government to gradually dominate the central bank resources. The economy - such as the Iraqi economy - largely open on the outside needs to be significant resources to compensate for the results of any crisis, and if they are borrowing from the central bank would respond when will this money? What is the capacity owned by the bank towards the government to recover the money that?.

The bubble and the high price of the dollar is a result of the policy of the government and the House of Representatives and it ought to be to remove obstacles for the foreign exchange market where you should not be given greater importance of fiscal policy, monetary policy is determine the exchange rate and help to manage the money and functions.

The central bank does not lend to the government but it helps the economy as a whole through price stability and credit regulation and supervision of the banking and financial sector regulation and payments and maintaining the country's reserve. Lama speak much echoed by the government and the Finance Committee in the House of Representatives on "foreign currency auction", this auction is a monetary policy which pulls dinars from the market and bought by foreign currency and here Thread ends for the central bank, we have a cash discharge process direct and simple. And if there is no import of "auction" For parliamentarians to inquire about the reasons for this in the customs or the Ministry of Commerce import process does not fall within the monetary process. That the central bank must be matched each dollar demand and this is one of the fundamentals of price stability as the demand that has not saturated by the bank will go and creates another market prices and the other, which is contrary to the central bank law and creates a state of economic instability.

I chose the Finance Committee put an upper limit on the sale of foreign currency (75 million dollars a day) thereby contributing to instability in and create multiple exchange rates for real because the demand was higher. In any case, this request does not ask about the central bank, but ask for all sectors of the economy, why the Finance Committee in the Parliament and practiced legislation and supervision question to sectors of the economy which are supervised by and to the private sector, especially not go and it's supposed to meet all corners of the economy. We do not doubt that there are irregularities, which requires follow-up with the relevant commercial banks, but we stress that the central bank is in front of the discharge process, but not cash, either by the imports is outside the scope of work of the Central Bank.

On the other hand the money to go abroad because the state did not provide suitable opportunities to invest at home. Also, a section of which is a kind of external savings (within the concept of the national accounts of a country) will return to Iraq in appropriate circumstances that must be provided by the State. As for the extra money must be sure of their sources and legitimacy of the banks and the circles in which anti-money laundering that should be strengthened, the majority of sources may be derived from money laundering or simply that the subject is big operations out of capital.

We must not forget that Iraq falls within the group of countries which are in transition from totalitarian regimes to open democratic systems provide the free economy. This group of countries undergoing many changes in the economy opens up (as states formerly the Soviet Union), but a lot of these countries, its economy was characterized by the transfer of capital abroad. In the case of Iraq also encourages this transition because of the conditions of violence and instability experienced by the country. This situation may explain the large amounts that are being converted to Aforeig.anha go abroad in order to spare, then we are in front of the case of capital flight and not smuggled. The situation in Iraq at the present time encourage capital flight, and if it does not allow for capital that moves the dollar exchange rate in the market will rise significantly hampering economic decision-making.

Iraq has not yet become a safe place brings investment, we need large national efforts to ensure stability and attract investment.
* Former Central Bank Governor

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