Raising the Iraqi dinar to the forefront again.
Version:-International paper Monday, February 20, 2017 (00:0-GMT)
Some Iraqi Government economists raising the dinar against the dollar until rising purchasing power and increasing confidence as a rule Iraq, as demanded by the need to stop «dollarization» economy by preventing deal internally and make local transactions are limited to use of the Iraqi dinar only.
It must be noted that 70 percent of currency in circulation was covered in gold and foreign currencies until 1981, the remaining Iraqi Government bonds (currency code), and then Iraq was leftover gold base system.
In order to maintain the cover, successive Governments have been linking financial policy, especially current and investment expenditure, the balance of payments situation, and the latter was determined by the Government's revenue from oil exports.
And to make this link administrative restrictions applied to both external conversion, trade in goods and services and the movement of capital.
Thus followed the conservative monetary and fiscal policies that kept the stability of the Iraqi dinar is installed by the Central Bank at 3.2 dollars to the dinar.
I shall abide by the lid easily dinar monetary authority in the exercise of their duties where he fomented maintain a stable currency, but it achieved at the expense of economic development that is not spending enough fear that increased spending on the stability of the currency.
But during the Iran-Iraq war, which caused huge Iraq reserves faded of foreign currency, the Government abandoned the currency Act and Ina started spending on war without quantitative restrictions, what caused a continuous decline in the exchange rate of the dinar against the dollar and other major currencies, because of the increasing gap between the supply and demand of Iraqi currency.
And increased economic embargo imposed on Iraq in 1991 it worse. Despite the Government's adherence to the official exchange rate (3.2 dollars) for official transactions, resulted from continued growing imbalance between volume of currency in circulation and demand another rate for the dinar is parallel or black market, market price, sometimes to 4000 dinars to the dollar.
After the occupation of Iraq in 2003 and the lifting of the ban on oil exports and reserves of foreign currency deposits abroad and the Central Bank to regulate the daily auctions to sell the dollar, which means withdrawing local currency Iraqi dinar, began to rise gradually until reaching 1200 dinars to the dollar, and stayed on that rate.
And lose the Iraq-Iran war and economic embargo then many Iraqi dinar as a store of value and as a means of circulation, causing most transactions inside especially internal trade in goods and services, to the dollar, it was «dollarization» Iraqi economy.
From this background about how to change the dinar over the past 36 years, and how it was «dollarization» economy, it is time to discuss what some economists ask now when claiming lift dinar and stopping «dollarization».
For more than four years, officials in Iraq talking about monetary reform project from which to raise the Iraqi currency exchange rate against the dollar so that the new dinar equal to 1.2 dinars to the dollar instead of 1200.
But the move was postponed to a later date because some Iraqi areas Government control after the occupation «ISIS». Then she began military operations to recover these areas that still lingers.
The Government is expected to return to the project after the end of military operations.
If the monetary reform is successful, there is no longer need to use the dollar in domestic transactions.
The latter happened after he became a tough daily transactions with the arrival of thousands of dinars per dollar, making individuals resort to deal in dollars instead of dinar, especially in large transactions in hoarding currency.
So you cannot cancel «dollarization» Iraqi economy by administrative decision or by administrative orders of the Monetary Authority but gradually phenomenon disappear with the disappearance of the reasons for it, after it is monetary reform referred to above, that the dinar will then by trading easy and valuable storage eliminates the use of the dollar.
But the monetary reform as stated above does not mean new official exchange rate of the dinar against the dollar.
If the shadow exchange rate floating as it is currently, it may rise or fall according to the relationship between supply and demand for dinars, higher offer for stability or dinar decreased demand, exchange rate declines in the dollar.
And if the opposite view dinar for settlement or high demand.
The Monetary Authority may to install new exchange rate with the dollar or a basket of currencies.
But in any case it is not advised to adopt a high exchange rate, it does not give effect to the economy or raise the value of national sovereignty as some believe, but negative effects on the economy.
The former Iraqi dinar ($ 3.2) was exaggerated and will continue to be exaggerated if you return in the future. It will make imports cheaper but hinders the improvement of production and export capacity of Iraq, the price may be 1.2 dinars to the dollar or dinar against the dollar is the right price.
But the Government fiscal and monetary policies to help maintain it.
It can be said that the invitations that we hear today by raising the dinar and cancel «dollarization» economics are not right for first or cannot meet before the monetary reform for second.