Stability of the exchange market
27/9/2017 12:00 am
Controversy continues on the issue of foreign currency selling window in Iraqi Central Bank until I got some calls from opponents to shut it down, while others confirmed that they only way to price stability in Iraq, and this controversy mounts sometimes and sometimes faded by a group of The reasons and motives that are often political.
Problematic window must be dismantled to reasons on the one hand and on the other hand, the possible alternatives in terms of reasons causes the window represents a means to sterilize currency in circulation and thus represents the most prominent tool in achieving price stability, as well as being the only way to cover imports that meet More than ninety percent of needed goods and services market.
In terms of alternatives, the State (represented by the Ministry of Finance) is the largest holder of foreign currency as a result of the Iraqi economy since oil is the only source of foreign currency, and therefore the inability of the private sector to contribute to the country's financial returns as in other countries, the private sector In Turkey for example achieves the 200 billion-dollar affinity financial returns and it does not need the Turkish Central Bank to intervene in the market to cover the need for foreign currency as long as the market is able to feed itself.
The window has become largely reflects normal fiscal policy movement is governed by the first two factors is the dollar volume of sales of the central financial and the second is the size of government spending, which is a big part of the demand for foreign currency, and therefore the greater the volume of sales of foreign currency from The Central Bank increased the financial capacity to meet the demand of dollar window as well as increasing the size of foreign reserves, either by increasing government spending that would negatively affect the size of the reserves and therefore the Bank's capacity to meet the demand generated by the dollar.
Thus, the Monetary Authority has found itself between price stability and pliers anvil size of reserves, but they succeeded so far in managing this difficult equation, here you must indicate the important point is that the sheer size of foreign reserves to the States is not the true measure of robustness Reserve but conform to international indicators on this side and that create stable exchange market.