 The stability of the Iraqi dinar has always faced major challenges in recent years, as it has witnessed price fluctuations, not to mention a gap between what the central bank determines and what is sold in the parallel market. In order to avoid the “volatility” syndrome and the “gap” in the price of the Iraqi dinar against foreign currencies, some experts believe that the solution lies in a kind of “surgical” operation for the country’s monetary system that may be painful, but it achieves long-term monetary stability for the national currency through... "float".
The cash selling price, according to the Central Bank, is 1,305 dinars per dollar, while the price for transfers abroad is 1,310 dinars per dollar, and the price in the parallel market is about 1,450 dinars per dollar in mid-May, according to local media, while it reached levels of 1,600 dinars per dollar in previous periods. For months, the Iraqi authorities have imposed restrictions in their efforts to control exchange rates, restricting all commercial transactions within the country to the Iraqi dinar, and established a new mechanism that subjects external transfers to greater scrutiny. Iraqi economic analysts who spoke to Al-Hurra website, some of them warned against taking a decision that would lead to floating the dinar, while some of them believe that a moderate policy could be taken that suits the Iraqi economy, based on “floating” and “stabilization” at the same time. Is the flotation policy compatible with the Iraqi economy? Advisor to the Prime Minister for Financial Affairs, Mazhar Salih, believes that floating the currency price does not suit the Iraqi economy, especially since it is “a rentier economy, dominated by foreign currency reserves.” He explains in statements to the “Al-Hurra” website that “the economic vision that wants to float the Iraqi dinar to end the gap between the official price and the parallel price may be possible in an economy in which the free market alone influences the movement of the balance of payments, and not in an economy in which the rentier government sector is dominant and generates reserves.” Foreign currency". He added, "The monetary authority in Iraq alone is the main source of supply of foreign currency that meets the desired demand for foreign exchange in the local market." Saleh believes that the demands for flotation inevitably mean “adopting the prevailing exchange rate in the parallel market, in order to achieve the goal of stability and balance in the official exchange rate itself at a new exchange point that the market will reach at the end of the assumed flotation policy and return to stability again.” The flotation scenario also means “the withdrawal of the monetary authority as the main central offerer of foreign currency, and its replacement by new forces of free market makers, which certainly have only a weak, limited supply of foreign exchange,” according to Saleh. He points out that these forces carry “an uncontrolled package of inflationary expectations, and are called in economic literature (the forces generating inflationary expectations), which will give dominance to supply forces of speculators” who own limited amounts of foreign exchange, matched by “open demand for foreign currency from The market side" exceeds what is offered by "at least more than ten times in our estimate." Chancellor Saleh described this policy as “unruly,” as as long as “the central government supply of foreign currency will be absent from the market, we will not obtain any equilibrium point in the exchange rate that flotation seeks except with a widespread deterioration of the exchange rate as long as it is carried out by forces generating inflationary expectations in a severe rentier economy.” "unilateralism." He warns that if the exchange rate moves in “a market that is incomplete, in terms of productivity, in its compensation for the required supply of goods and services,” no one “will know how much the new exchange rate resulting from the flotation will be,” which will be accompanied by “a prior wave of inflationary expectations,” the trends of which are difficult to control. , which may push monetary policy makers to “intervene with excessive foreign reserves and unjustified extravagance in foreign exchange to impose a state of stability.” According to the World Bank, Iraq has 145 billion barrels of proven oil reserves, which are among the largest crude oil reserves in the world. But Iraq hopes that the country's oil reserves will exceed 160 billion barrels, according to what the Minister of Oil, Hayyan Abdul Ghani, recently announced. The claims that have appeared every now and then for years calling for floating the exchange rate of the Iraqi dinar are “strange,” and most of them are made by people who are “not specialized in economics or monetary policy,” according to what Professor of International Economic Relations, Abdul Rahman al-Mashhadani, confirms to the Al-Hurra website. He asserts in a decisive tone, "Iraq cannot proceed with floating the dinar's exchange rate. The evidence for this is all the agreements concluded with the International Monetary Fund since 2004, and the reviews praised the stabilization of the exchange rate by the Central Bank of Iraq. Al-Mashhadani added that there was a study by experts at the World Bank during the past years that recommended “raising the exchange rate,” indicating that even then, “these recommendations cannot be taken into account because the World Bank is concerned with what is related to economic development, but following up on the recommendations for monetary policies is taken into account if It was from the International Monetary Fund. In its latest review on Thursday, the International Monetary Fund praised the efforts of the Central Bank of Iraq to tighten monetary policy and strengthen its liquidity management framework. He explains that “the real gap is in the wheel of production in the Iraqi economy, as the majority of goods are imported from abroad, which means that the flotation will cause a spiral in price rates to become significantly high and affect the marginalized classes,” noting that such a decision cannot be taken “as a matter of politics.” “Cash” only, as we must “consider the burdens it will impose on citizens.” Al-Mashhadani confirms that what has been implemented in other Arab countries does not “mean that it can be applied to the Iraqi economy,” suggesting that “the exchange rate will become at the levels of 5,000 dinars to the dollar,” as “the Central Bank has lost control of exchange rates and left them to float.” There is a fear that “floating” will cause “social” problems, as “salaries will erode significantly,” which may threaten “new classes to slide into poverty,” while “a class of merchants, politicians, and businessmen will benefit, who will benefit from the state of instability that will result from... This matter". Al-Mashhadani agrees that floating in the end means “that 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 demand in the markets,” and the government will need to increase salaries and allocations for social aid packages. "Controlled float" for full "free market". The economic expert, Manar Al-Obaidi, recommends following a “currency float” policy, but according to controls, such that a “managed float policy is used to gradually liberalize the currency until complete liberalization of the exchange rate is reached.” He said in a post on his Facebook account, "Such a policy could be a successful alternative in Iraq by following a managed float policy where the central bank controls the range of volatility and works to gradually increase it until the currency is completely liberalized." Al-Obaidi gave the example of “the managed flotation policy followed by Morocco in 2018,” noting that it was accompanied by the abolition of customs tariffs on basic materials and “supporting funds for vulnerable classes,” stressing that this experience can be used to influence “inflation.” Reasons for the exchange rate “gap”. The Iraqi government advisor, Saleh, attributes the reason and existence of a “gap” in the dinar’s exchange rates against the dollar between the official and parallel markets to “external factors imposed by the compliance platform and auditing administrative restrictions on external transfer movements, which is not related to the deficit in the authority’s monetary reserves,” noting that the reserve Iraq's foreign currency is considered the highest in the country's history, as it touches the levels of import coverage for 16 months, compared to the global standard, which does not exceed three months of import coverage. Financial transfers in dollars through official channels have increased significantly in Iraq, while Iraq continues its reforms of the financial sector in line with international standards, according to a previous report by Agence France-Presse. In late 2022, the Iraqi banking sector adopted the SWIFT electronic transfer system with the aim of providing better control over the use of the dollar, ensuring compliance with US sanctions on Tehran, and also in order to limit the prosperity of the informal economy. The financial standards that were adopted encouraged the emergence of a parallel market for currencies, attracting those seeking to obtain dollars outside official channels. Saleh pointed out that there is a distortion in support for the prices of some commodities “on the part of financial policy, which is support in which the rich and poor mostly enjoy it equally without discrimination, and it represents an added, imperceptible real income, and it is the product of a financial policy inherited from the consumer welfare state for the rentier resource.” He continued, "It is inconceivable until this moment that 90 percent of Iraq's population is receiving food support provided by the state as an extension of the economic blockade phase of the nineties in light of the changing standards of living and lifestyle, the increasing number of affluent people, and the growth of the middle class." In mid-May, the Iraqi authorities announced the purchase of 1.5 million tons of wheat since the beginning of the year. According to the Ministry of Agriculture, Iraq, with a population exceeding 43 million people, needs between 4.5 million and five million tons of wheat annually. The International Monetary Fund said Thursday that Iraq's internal imbalances have been exacerbated by significant fiscal expansion and low oil prices. The Fund added that Iraq needs to gradually correct public financial conditions in Iraq to achieve debt stability in the medium term and rebuild financial reserves. To ensure compliance with US standards regarding money laundering and sanctions on Iran, about 20 Iraqi banks were prevented from making dollar transfers. Last September, the Iraqi government decided that merchants who deal with Iran are forced to turn to the parallel market to obtain currency, given that Tehran is subject to sanctions and “is not allowed to conduct financial transfers,” according to Agence France-Presse. A positive step for the "economy" but!! The Iraqi economic academic, Nabil Al-Marsoumi, believes that the solution to addressing the discrepancy in the currency exchange rate through “free floating of the Iraqi dinar” may have “some economic positives.” He added in an interview with Al-Hurra website that "the economy should not be taken in its abstract aspect, but rather in terms of its relationship to people, especially the poor among them." Al-Marsoumi warns that "the Iraqi dinar may witness a violent collapse and rampant inflation that will cause prices in the Iraqi market to rise to record levels that will harm citizens, especially the low-income classes." He explains that Iraq lacks "a national private sector that could contribute to increasing the supply of dollars in the local market, and because of the large volume of imports, which reach 67 billion dollars annually, the government is the only party that owns the dollar." He notes that "if the government decides not to intervene in the exchange market, we are expected to witness consequences that will cause severe damage to citizens' living standards, making the poor even more miserable, and may lead to social tensions and a major rift in the social peace." For his part, the economic expert Al-Obaidi defined the primary goal of liberalizing the currency as “creating an economy capable of withstanding various economic shocks, and reducing reliance on reserves that are greatly depleted in order to maintain a fixed exchange rate, which could stop once the reserves run out.” . He added that this also "contributes to supporting the domestic product and changing the consumption pattern, and thus reducing the import bill for Iraq, which rises annually as an indirect reason as a result of the attempt to maintain a fixed exchange rate." Not to mention, “continuing to try to maintain a fixed exchange rate depletes reserves,” which will lead at a certain stage, “accompanied by a decrease in reserves, followed by either a complete liberalization of the currency or a significant reduction in the price rate, which will have major repercussions on the citizen, and will cause great confusion in "A market that already suffers from a lack of economic stability." The Iraqi economic expert, Mahmoud Dagher, confirms to Al-Hurra website that the solution for Iraq may be a system “between floating and stabilization” to help stabilize currency exchange rates. Expert Dagher, a former official at the Central Bank of Iraq, explains that "the origin of the exchange system is floating, which is what free countries adopt." He explains that "the continuity of the gap requires reaching a middle system that solves the problem between free floating and stabilization. This is a system that many developing countries follow, and it helps solve the problems of currency fluctuation." Financial expert Saleh proposes alternatives to floating, in a way that serves the objectives of monetary policy and limits inflationary risks, through the use of financial tools such as “taxes and customs duties that act as an intermediary to influence the exchange rate to achieve balance and price stability.” He added, "Instead of resorting to lowering the exchange rate to harmonize the market through flotation, it would be through amending customs tariff schedules and imposing careful, thoughtful controls to protect the national economy." Saleh called for correcting the defect in the structure of the Iraqi economy as a whole, as it is not possible to continue with “high operating spending in annual public budgets, which has always generated cash income from rentier sources that are matched only by very limited productivity of commodity and service flows, which has made the country It relies mainly on large-scale imported consumer goods.” Counselor Saleh revealed, on Thursday, that the loans provided by the International Monetary Fund to Iraq since 2003 totaled no more than $8 billion, confirming that they were fully repaid, according to a report published by the “INA” agency. Last March, the International Monetary Fund stressed “the Iraqi economy’s need for broad structural measures to enhance private sector development and economic diversification, and to raise growth rates in the non-oil sector in a sustainable manner to accommodate the rapidly increasing workforce, and to increase non-oil exports and government revenues, in addition to Reducing the economy's exposure to oil price shocks. He called for "accelerating the pace of reforms in the financial sector to improve access to financing, by modernizing the banking sector and supporting the ability of banks to establish banking relationships with other banks, and taking steps aimed at merging small-sized private banks," not to mention the need "to restructure the two largest government banks." ". The Governor of the Central Bank, Ali Al-Alaq, announced in statements in early May, “that the banking sector is witnessing major qualitative developments, while calling for cooperation and coordination between Arab central banks, banks, and non-banking financial institutions to achieve stability and economic growth,” according to the “INA” agency. He continued, "Central banks face new challenges in the interaction between financial and monetary stability, in light of the dominance of general financial policy and the necessity of central banks to facilitate excessive government debts, according to financial control, which requires reducing spending or increasing domestic revenues, or both." Iraq has begun to recover relatively after years of wars, occupation, and sectarian violence that followed the US-led invasion in 2003, according to an Agence France-Presse report.
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 Central Bank of IRAQ Monetary policy in Iraq faces many challenges, especially in light of the presence of an irregular currency exchange market run by networks that manipulate the prices of the dollar against the dinar, according to local media reports. In the face of the "monetary dualism" that has harmed the country's economy, Iraq is moving toward applying the principle of "monetary sovereignty," according to what the financial advisor to the Prime Minister, Mazhar Muhammad Salih, revealed in statements to the Iraqi News Agency, "INA." By applying the “principle of monetary sovereignty,” according to Saleh, “the Iraqi dinar becomes the only resort for exchange, pricing, and coverage of internal transactions.”
The Iraqi authorities are struggling in an attempt to control the exchange rate of the Iraqi dinar against the US dollar, which is witnessing fluctuations that have led to a decline in the value of the dinar, accompanied by compliance with international rules in financial transfers, which has affected the supply of the dollar in the market. Understanding the Monetary Sovereignty The economic advisor, Saleh, explains in a research paper published by the Iraqi Economists Network last October that monetary sovereignty is called “Westphalianism,” which expresses “the state’s authority to exercise exclusive legal control over its currency through the functions of the central bank, as it is the exclusive authority to determine the quantities of the transaction and its value as a means of payments.” . He added that the name "Westphalianism" comes from the "Westphalian system, which represents a principle in international law that every state has exclusive sovereignty over its territory," which is explicitly stipulated in the United Nations Charter. The research states that this “Westphalian monetary” sovereignty is based on: the independence of monetary management, issuance, and exchange system. Why now does Iraq need to implement such a principle? According to the research paper, Saleh believes that Iraq needs to apply the principle of monetary sovereignty in order to enhance the ability of monetary policy to “control local liquidity levels through the strength of the central bank’s intervention in the monetary market.” Challenges and Solutions He warned of the continuation of what he called “the reality of colored noise that allows the survival of the black market for the monetary dollar” and its ability to influence the price system, not to mention greater availability of the state’s ability to manage inflation by influencing it through interest rates. Saleh stressed that the Iraqi state’s adoption of the principle of monetary sovereignty will lead to “maintaining a fixed exchange rate that allows free capital flows and confronting cheap money.” The Iraqi General Directorate of Intelligence and Security had announced the overthrow of a network that manipulated the dollar exchange rates in Baghdad, according to a report published by the "INA" agency. Last August, Prime Minister Muhammad Shia al-Sudani announced the arrest of a network of currency “speculators” who collect dollars and send them to the Kurdistan region in northern Iraq, and then smuggle them abroad, without specifying the destination, according to an Agence France-Presse report. Factors for applying the principle of monetary sovereignty? The Iraqi economist, Salam Sumaisem, identified the most important factors that allow the application of the principle of “monetary sovereignty,” stressing that it is not linked to the existence of a political decision to implement it, but rather to economic factors and determinants. In an interview with Al-Hurra website, Sumaisem laid out a package of factors that must be present, including: “the strength of the economy, the stability of exchange rates, the strength of the national currency itself, and the existence of a truly productive economy that does not rely solely on imports.” Despite the authorities' attempts to control exchange rates, trading in the informal market still represents about 10 percent of the trading rate, in what Counselor Saleh described as "an uncontrolled market controlled by speculators and adding noise to the Iraqi economy as a whole." Will it affect deposits in foreign currencies? The Iraqi economist, Mahmoud Dagher, explains that the principle of monetary sovereignty “does not mean that the savings of citizens or any legal entity that has funds deposited in foreign currencies will be affected, as they remain able to deposit and withdraw funds in dollars or other foreign currencies that may be deposited in them.” In response to Al-Hurra website's inquiries, he pointed out that the majority of countries seek or aspire to reach "monetary sovereignty" by making "their national currency the primary currency to be used in payments and transactions within the country." Applicability of the principle of monetary sovereignty in Iraq? Iraqi economists unanimously agreed that applying the principle of monetary sovereignty requires the availability of several factors, the most important of which is “bridging the gap between the exchange rate of the national currency against the dollar.” Expert Dagher, a former official in the Central Bank of Iraq, said, “Whenever the exchange rates of the national currency stabilize against foreign currencies, the principle of monetary sovereignty becomes applicable,” which must be accompanied by “the absence of a gap or differences between the exchange rates in the official market and the parallel market, and preventing what happens.” Of speculation in this field.” Expert Sumaisem confirms that every country has the right to resort to the principle of “monetary sovereignty” in order to control the “money market,” adding that “this matter is not only related to desire or ambitions, but rather to the strength of the national currency in real terms, as the currency is not just paper, it is “It must express a value corresponding to the GDP, and its ability to truly store value, while being coupled with various indicators of strength at several levels.” Iraq began applying the standards of the international transfer system "SWIFT" since mid-November of 2022 to access Iraq's dollar reserves in the United States, which are estimated at tens of billions of dollars, according to Agence France-Presse. Iraqi banks must currently register their transfers in dollars on an electronic platform, which checks the requests, and the US Federal Reserve examines them, and if it has doubts, it stops the transfer.  Iraqi Dinar to USD Conversion Advisor to the Iraqi Prime Minister for Financial Affairs, Mazhar Muhammad Salih, revealed the dangers of the exchange rate becoming unstable if demands to float the dinar are met, indicating that the dollar exchange rate in the parallel market is currently gradually approaching the official one.
The Pitfalls of Floating the Dinar Saleh said, “Calls for floating the dinar to end the gap between the official exchange rate and the parallel market may be possible in an economy in which the free market alone influences the movement of the balance of payments and not in an economy in which the rentier government sector is dominant and generates foreign currency reserves.” The Role of Monetary Authority Saleh continued: “The monetary authority alone is the main source of supply of foreign currency that meets the desired demand for foreign exchange in the money market, to provide stability in this market and achieve a desired and homogeneous exchange rate through the interventionist role played by monetary policy,” according to what was reported by the Iraqi News Agency (INA). ) Balancing Stability and Market Forces He added, "Claims for flotation mean in all cases adopting 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 reached by the market at the end of the supposed flotation policy and returning to stability again. Also, the flotation scenario means in all cases the withdrawal of the authority." Cash from being an essential central supply of foreign currency, to be replaced by new forces supplying foreign currency from free market makers, which only have a weak, limited supply of foreign exchange, and at the same time they carry an uncontrolled package of inflationary expectations and are called in economic literature the forces generating expectations. "inflationary". # I want_My_ dinar ... Iraqis on Twitter demand the return of the dinar to its previous value2/26/2021  A number of Iraqis demanded that their country's currency be returned to its normal state and raised its value against the US dollar, which made the hashtag # I want_Denary among the most discussed topics on Twitter in Iraq. The Central Bank of Iraq announced a reduction in the exchange rate of the Iraqi dinar against the US dollar, last December, in the first such measure in half a decade, and coincided with a stifling financial crisis plaguing the country as a result of the collapse of oil prices.
A statement by the Central Bank of Iraq stated that the new price of the dinar against the US dollar was set at 1450 dinars instead of the previous rate of 1190 Iraqi dinars per US dollar. And the Ministry of Finance promised, at the time, that "the decision to amend the exchange rate will be a one-time only and will not be repeated in the future." After the issuance of the decision last year, the Iraqi government reassured its citizens about the decision to reduce the value of the official currency, stressing that it would not affect the classes that depend on local goods, but experts and observers criticized the move and believed that it would increase the already high poverty rates in a country experiencing the worst economic crisis in decades . The Iraqi Ministry of Finance attributed the decision to the government's attempts to address the stifling crisis that Iraq is witnessing as a result of low oil prices, to ensure the protection of the economy and to achieve the reforms that it promised several months ago. The decision sparked a wave of anger in the Iraqi street, but Prime Minister Mustafa Al-Kazemi defended his government's move and said that he had two options, "either the collapse of the system and the entry into complete chaos, or we enter into a Caesarean section for reform." Since the collapse of oil prices earlier this year, Iraq has faced an unprecedented liquidity crisis. The oil-exporting country was forced to borrow from the bank’s reserves in dollars to pay off nearly $ 5 billion a month, representing public sector salaries and pensions. |
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