Euphrates Center discusses Iraq in exchange rate stability pillar or a waste of a dollar
Essam ruler 1734 2017-06-30
In monetary policy remained unbalanced and Iraqi economic challenges created by low oil prices and the level of security threats and the Iraqi cities and towns reform hypothesis destroyer, the Euphrates Center for development and strategic studies, to establish his monthly discussion series titled: Managing Exchange Iraq: stabilizing pillar or a waste of a dollar, so in love and prosperity Association Hall in the presence of an elite group of academics and researchers in research and study centres and economists interested in Iraq and a number of journalists and media professionals.
The seminar was opened by Dr Haider Al tastes, head of economic studies at the Euphrates Center with an introduction in which he said: "the Central Bank has succeeded over the years in achieving relative stability in price levels, via feed different types of pulp on the dollar, the question was what (2014) while the emerging oil dollar flow profusely, how to fit economic policy between the requirement of simultaneous welfare of cheap consumer imports, in particular, the goal of building a production base for the economy of Iraq out of crude oil (2014), while oil revenues scarce and relegated Central Bank reserves horrendously emerged at the forefront of the economic scene is another question, how long the Central Bank drained foreign exchange reserve, under a dollar shortage on the one hand and suspicions of corruption surrounding the auction of foreign currency from the other and what the effects on the economy.
In this context the Euphrates Center hosted cash expert Prof Abdel Hussein majority to discuss through the modern experience of exchange rate management in Iraq and what are the main policies to anticipate the next financial crisis.
So stressed: "the subject of foreign exchange policy in Iraq is a thorny issue, complex and is one of the policies that can be prepared by economists, to handle this in such a short period must condone a lot of theoretical aspects and therefore have to focus on objective:
The first topic/auction and its relationship to the currency exchange rate
Other topic/choose appropriate Exchange System for the Iraqi economy.
Currency auction and its relationship to the exchange rate
First, there must be agreement on principle or uniform definition of exchange rate and there is more than one definition, there are those who believe the exchange rate (the number of domestic monetary units equivalent or equal to one unit of foreign currency), and from there he sees (and is the number of units of the foreign currency equivalent to one unit of local currency), but the prevailing and common in all countries of the world is the first definition, this means that the inverse exchange rate if we exchange rate means that the value of the currency has declined, either
The second definition is used in the British and some other types of exchange rate from like the nominal exchange rate and the real exchange secret, a comparison of the goods and the price level, there are effective exchange rate, what concerns us is the nominal exchange rate is important to a lot of points including:
1. the exchange rate linking the local economy with the global economy
As long as each State has a certain currency if when trading or when trade or financial exchange between any State, the exchange rate must be to complete deals,
2. the exchange rate can reset or affect the distribution of income in case of devaluation or raising the exchange rate will encourage exports and a finer sense are exportable goods encouraged this means raising the incomes of those working in this sector leads to increased consumption Stewie.
3. the exchange rate has an impact on resource allocation and here means that the resources if the State reduced its currency and foreign exchange rate raised the supplier headed exportable sectors and withdraw of goods. "
An overwhelming majority said: "the foreign exchange rate policy overlaps with monetary policy in advanced state usually exchange rate policy policy powered by monetary policy, but the exchange rate policy in developing countries is part of why monetary policy, because in developed countries there is a field of financial markets and to deal with stock, sings the Central Bank monetary policy offset from dealing in foreign currencies, but in developing countries, especially in economies like the Iraqi economy no money markets, the Central Bank was forced to use foreign exchange control Liquidity and the levels of money supply through buying and selling foreign currencies to offset monetary policy, through this relationship that the exchange rate of three roles:
First floor/can be exchange rate as an instrument of monetary policy tools and this is what happens in Iraq, especially we in our monetary policy tools, which are interest rate and discount rate and legal reserve and open market, these tools are used in Iraq to that recourse to currency auction and is similar to the open market.
Second floor/exchange rate target could be a broker through addressing the problem of balance of payments, now we have a problem with public budget exchange rate can be used as a medium to address a budget deficit.
The third round also could be an ultimate goal in itself and that by using the money supply to tackle the exchange rate or the use of income or income or using interest rates to control the exchange rate.
Auction currency: it is one of the tools used by the Central Bank after a year (2003) as the subject of existing facilities which are divided into lending facilities and deposit facilities, foreign currency auction is a very suitable tool and not Iraq alone of using this method, but there are Turkey and India Gulf and Iraqi law a reality, select a set of goals for the currency auction, but the most common is to satisfy domestic demand for dollars as well as meet the requirements of the imports for the Iraqi society, in addition to satisfying the needs of saving either within the community or leaked out The country.
With regard to the mechanism of action of auction coin auction opens continuously during working days, and requests by the banks or by finance companies, either independently or by some banks, this opens the statistics by the Central Bank's Committee this Committee usually consists of a set of public managers, who are responsible for this Commission to either reject or approve applications usually are approved, if very large fragmented requests requests where usually rejects Irregularities or lack of the necessary conditions, or it may be to buy unwanted goods, refuse such requests.
The Central Bank under this mechanism he worked for a year (2004) and to present, this mechanism has provided a lot of demand (75%) Currency auction of the year (2004-2015) went into private business, the rest (25%) To meet domestic demand and domestic demand going abroad, as for the prices, the Central Bank to control exchange rates a year ago (2004 to 2009), reaching (1170) and keep (2009-2011) at this same price, thus reducing the Central Bank (1166) a year (2012-2015), then returned and lifted it again (1182) (month 12 year 2015 until early 2017), since the beginning of this year until the present day buy bank price (1184) dinars to the dollar.
This persistence flag us run up (2014) installation was necessary for the Iraqi economy, because there was an abundance of resources and the kind of stability is OK but after 2014 engendered have problems,
if the Central Bank was working on stabilizing the exchange rate and the stabilization of the exchange rate criteria acceptable, hence we ask are necessary or unnecessary auction, the auction is providing the Government with Iraqi dinar and that Government is the preserve of dollar and dollar inputs (100%) Are from the Government, if the Iraqi Government acquires all the foreign currency inflows to the Iraqi economy, can dispense with the Iraqi Government about the dinar could not, if the Government is selling dollars either directly or entrust the Central Bank to sell the dollar and that's what happened.
The question of abolishing the auction can not be providing the Government with dinars outside the auction if the Government monopolized the dollar and began to give salaries in dollars turned cash trading in dollars and that means abolishing local currency and getting into trouble, so the Government can't deal in dollars and can also sell the dollar because it was agreed that the trend is true.
Are there problems haunt the auction Yes and that the real problem is that the real and actual importer gets a dollar parallel market price, the Government sells dollars to the Central Bank at the official rate and the Central Bank buy this dollar to banks that enter the auction at a discount here the problem lies in the difference between the bank rate and the market price, and this problem needs to be addressed through the State banks are selling this difference goes to the budget, but what is going on in the Central Bank may be Its aim to encourage the private sector and private banks that involve them in auction, this process needs to be developed.
Choosing appropriate Exchange System for the Iraqi economy
Is that fixed exchange rate or a suitable stable now for the Iraqi economy or not?
There are multiple exchange rate systems, there is an old fashion currency board was used in the 1930s in Iraq, there is a fixed exchange rate, there is a creeping, managed floating linkage and free float, and these can be divided into three categories:
Class cancellation of currency
And fixed arrangements
And flexible arrangements
We have a group on the economics of the exchange rate and is a collection of lines, if the economy is stable and enjoy a stable reliable criteria in selecting these criteria and Exchange system can be replicated in normal circumstances, but after a year (2014) we have a problem and are expressed as the dual shock, where terrorist groups who occupy large parts of this country, not to mention the oil price shock, are resorting to natural drainage system selection criteria under the answer shocks, Another way is to select the Exchange system under our existing shocks, under monetary shock possible recourse to fixed rate but if real shocks economy cannot survive on fixed rate, what real shocks:
First: the shocks running on the volatility of GDP
II: the country waging war against these gangs and this war requires a fiscal policy expansionary its spendings to feed the war
Then the Iraqi economy since mid-2014 and until the present time exposed to real significant internal and external shocks, under real shocks must move towards a flexible exchange rate, but the problem is that the Central Bank should be as the editor of the Iraqi economy responds quickly and on the Central Bank to leave the fixed rate and moves towards flexible exchange rate, this action also not acceptable but moves across Exchange rate creeping, proves the price for a bump up to reach the exchange rate near orbit Flex or free, so what are the benefits that you will get it..?
First: to maintain foreign reserves at the Central Bank.
II: expand the effectiveness of monetary policy
Thirdly: raising the exchange rate or currency devaluation will contribute to the budget, plus a lot of imports that could be made to Iraq's recreational goods, dispensable through devaluation, raising the exchange rate automatically will give her up when traders see it as profitable.
IV: strengthening the competitiveness of exports
V: address external shocks
VII: abolition of pluralism, there are two prices for a formal exchange and parallel
VIII: investment promotion
IX: the rationalization of consumption plus inflation is a tax as long as the State now cannot collect the tax because the tax device specific problems you can get taxed by another.
X/Enterprise activation all types of small, medium and even large
-Professor Dr Tawfiq Abbas Abd AWN "asks why focus on auction with other means for monetary policy and are already successful auction, especially when the Statistics say that one third of the auction goes to other ports and not to import, the other thing that dealing in dollars are there stats focused on this question, the third question for currency devaluation entails essentially two impact inside and the impact of price in order to succeed it will encourage some export industries and industries compensating importation, does our industries Competitive?".
-Professor Dr Rahim sharee'ah College of administration and Economics University of Karbala "finds that the paper had not been subjected to the negative answer to raise the exchange rate and what is the position of limited income and poverty status of growing inflation and what is the position of the Government of the social strata.
-Sheikh Morteza Chairman pension news to culture and information "pointing to subtract special floating idea that that idea would harm the poor class, with the result that policy in volatile economies as Egyptian and Iraqi economy won't lead to practical results, particularly since most of the economies that work on major economic crises facing float like Turkey, Egypt and Iran, the problem is not treated float but its depth and the Egyptian Testament, social groups are more affected, my question is how can this policy to fight in Under low oil prices? The other question is floating in Iraq encourages production because of exchange rate stability in Iraq encourages consumption, assuming that production encourages float as it forces the Iraqi citizens to work and move either if we fixed exchange rate, be reassuring?".
-Dr Khalid Euphrates Center Manager Kevin for development and strategic studies finds: "the Iraqi economists close to the decision making always defending cash Government through the exchange rate, the problem is that those with political agendas and therefore they abandoned the logic for managing the crisis or not, the case is special and integrated cash to float or float political associated with other conditions, so if you're a decision maker will go to option the same policy pursued by the Central Bank.
-Ali Hussein Abid and story writer, columnist at the News Corporation, inquire about the secret of falling foreign exchange reserves other thing what before the auction's daily dollar compared with those of Iraq money?".
-Adnan al-Salihi, Director of the Center for strategic studies, future "thought that the Central Bank damage subject motion blur for years and years, most of the changes affecting the Central Bank pyramid head was assigned for inefficient personalities, like political horizon may grind Central Bank in aspect, my question here is political interference had a prominent effect of movement and Central Bank policy, and the Central Bank's foreign loans are considered or imposed."
-Hamid Abdel Hussein, a researcher at the Euphrates Center "thought that Iraqi output device rigid device if we devalue, it will transform the productive apparatus to flexible economy increase and increase exports.
-Dr Firas Hussein Ali al-saffar, head of crisis management at the Centre for Strategic Studies/University of Karbala asking: "when is a perfect exchange rate plus no there is a range of exchange rates with regard to the exchange rate, Iraq managed to pass along last period because the Iraqi reality not likely a lot of shocks that may first affect the poor segments of society, the question is can invest in cash reserves or not permissible."
-Ehab on my teaching and informational news network clerk "asks the Iraqi case close relatives of Lebanese economic reality but Lebanon does not suffer from the same problems afflicting Iraq, next point to fixed exchange rates always in rentier States, trying to prove the exchange rate to increase the purchasing power of its currency".
-Dr Hussein Ahmed Sarhan, head of international studies at the Center for Strategic Studies/University of Karbala and head of the human rights section in the Euphrates Center for development and strategic studies "begs the question, if we reduced the difference between nominal and real price price toward raising the nominal price so underestimate the budget deficit ensure that real price would not rise, the second question is the Central Bank insists that policy because there is an influential parties are running in secret, the other question is Iraqi goods entering the equivalent value They are sold at auction the coin a day or are there false statements?".
-Javid Ahmed Adam, Director of the Center for defending rights and freedoms "believes that addressing the Iraqi political and economic reality of cash you need insight and comprehensive examination of the circumstances surrounding the Iraqi social and economic realities particular effects and economic imbalances affecting particular social strata and that Iraq does not suffer from a lack of resources, and that corruption is the bombshell that weighed upon Iraq especially in banking and currency auction, so the citizen will affect the exchange rate plus other crises afflicting".
-Professor Hashim Al-shammari of the College of administration and Economics/University of Karbala believed "that the Central Bank of Iraq is actually independent and therefore is unable to take an independent decision on deregulation, as for the exchange rate regime is fixed and adjustable constant, either in relation to the unit of measurement, it has nothing to do with the value of the currency."
-Professor Dr Allawi full management and Economics College/University of Kufa "recommends that a floating exchange rate and we are creeping in the event of recourse to this mechanism is there need for survival of the auction, or there is a window to sell the currency for trade walk official price, on the other side and under the current data of the Central Bank and the economic situation in the country can go to floating exchange rate, the auction is a new mechanism, how was resorted to, to get a auction of a problem in the walking section , So that corruption in the auction currency is evil if it is eliminated through the use of credits and to be strict supervision, also from pros exchange rate movement are a matter of public budget, inflation is also used as a mechanism of economic growth but should be used with caution.
Comment on interventions
All records are Mr incrementally inquiries from it does not support real free float but managed exchange rate closer to Flex, to preserve what's left of the reserves are limiting the use of reserves to give simple movement of the exchange rate, there is an existing partial dollarization of it pressed him, and we are not under a stable economy but in a war economy.
Besides, if we continue to defend the exchange rate will reach a catastrophic situation Noam Exchange Exchange and accept every problem but now the existence of reserves can work on flexible exchange rate better, there are also a lot of methods such as using subsidies to compensate for inflation, the other thing that discourages floating production so dramatically but also somewhat encouraged that the Central Bank is linked to an agreement with the International Monetary Fund and the World Bank which has limited freedom and not full to maintain price The Exchange, in addition to managing the Central Bank very clear and not blurry.
As for the politics is involved in every aspect of life of the Iraqi economy, as regards the ideal exchange rate, which brings together the supply and demand for foreign exchange rate, Lebanon has no problem considering that tourism is the main supplier of foreign exchange is divided but at Forex resource Iraq possessed State, interest rate now plays by speculators now lending and deposit in local currency differs from the interest rate on lending and deposit in foreign currency and this (25%) The rest of the demand caused by the interest rate the Central Bank ignored it completely.