2020/10/12 10:20 Readings 22 Section: Reviews
Iraq and the US Federal Reserve
Baghdad / Obelisk:
Dr.. The appearance of Muhammad Saleh
1- Iraq and the international will
First, Iraq did not deviate from the cycle of imposing the conditions for the victor in the second Gulf War.
Which led to the change of the previous political system in Iraq and the acceptance of Security Council Resolution 1483 in May 2003 / which established in one of its paragraphs the DFI, which by its nature represents the opening of a bank account in the name of the Central Bank of Iraq (and for the benefit of the Government of the Republic of Iraq) at the Federal Reserve Bank in New York NY FED in which the proceeds of the source Iraqi crude oil, oil and gas derivatives, if any, or any frozen funds belonging to the Iraqi government are deposited in the countries of the world.
As for oil revenues, they are deposited in a main account or primary account (with the Federal Reserve Bank) called OPRA, meaning the account of oil receipts, in order to deduct compensation for the Kuwait war, which was then set at 5% of the proceeds of each exported Iraqi barrel of oil (and the deductions go as compensation) to another account with the reserve The Federal Reserve and later transferred to an account affiliated with the UNCC, meaning the United Nations Compensation Committee, which is open at JPMorgan Bank.
As for the net amount after deduction, it goes to an account with the Federal Reserve called DFI / Development Fund for Iraq, as we mentioned earlier, and it is called Iraq2 today, and is held by the Central Bank of Iraq for the benefit of the Government of Iraq.
Second, Iraq is, in all cases, a dollar area, because the oil market is a dollar market by origin in terms of pricing and payment.
For its part, the Central Bank owns nearly half of its reserves in dollars, resulting from the Iraqi government exchanging 70% of its dollars in its account in the US Federal Reserve and converting it to the Iraqi dinar issued by the Central Bank in order to cover the general budget expenditures in the national currency, since the Central Bank of Iraq is the issuing bank.
Accordingly, Iraq is currently a dollar zone in its international trade or with all its trading partners by 90% ٪.
So, if Iraq is not a euro area or a pound sterling and others, and by 100%, there is no point in transferring the dollar accounts in question.
Disposing of dollars, and even if the Central Bank of Iraq deposited its reserves and government revenues in dollars in a European or Chinese bank, it will be subject to the supervision of the OFAC Office of External Assets Control with the US Treasury, which can freeze and confiscate the movement of funds in dollars between international banks by virtue of its control over the SWIFT transfer systems or others.
Third, and in light of the above, giving up the dollar as a reserve currency, working with another reserve currency, converting oil revenues into alternative international currencies, and using means of payment and building reserves other than the dollar, is a costly job on an oil economy like the Iraqi economy, which is still dealing with its oil revenues in the currency of the United States.
The US dollar still dominates 86% of remittances in international transactions and trade and 60% of loans granted by international banks.
Half of the official foreign currency reserves of the world’s countries are in dollars.
Finally, changing the mechanisms of paying compensation for the Kuwait war and transferring them to a jurisdiction or banking jurisdiction other than the United States, in which Iraq will need a UN Security Council resolution to change the mechanisms for deducting Kuwait war compensation (knowing that the remainder of these compensation is said to be about 3 billion dollars. More than 52.2 billion dollars).
Therefore, amending Security Council Resolution 1483 of 2003, if done, would mean giving more than a negative political signal towards the United States!!!
I do not think that Iraq is in a position to take such steps in dealing with the United States of America through the UN Security Council and is bound to the Framework Treaty The Strategist.
2 Protection of Iraqi funds in the US jurisdiction,
there is no immunity protection for the US president at present on the funds of the Republic of Iraq in the US jurisdiction, as some believe, which was approved by the first presidential order number 13303 since May 2003 on the account of the DFI at that time.
And what is opened in the name of the Central Bank of Iraq for the benefit of the government of the Republic of Iraq, that is, the account opened with the US Federal Reserve Bank in New York.
The subject matter of protection was still being explained. As follows: I repeat that there is no official protection currently under an executive presidential order for the American president over Iraqi deposits in the US jurisdiction, which is something that was renewed annually until the last renewal, which was in the year 2012-2013, at which time Iraq paid compensation to the Americans in the amount of 400 million dollars. It's called "tort claims."
The last extension of the US protection on Iraqi funds took place during the era of President Obama, who stipulated that Iraq would commit to restructuring government banks within the IMF conditions mentioned in the SBA signed in 2010 and the protection was at that time final and for one year only, as well as the end of protecting nations.
The United Nations on the funds of Iraq and as provided by Resolution 1483 of 2003, which also ended since the issuance of UN Resolution 1956 at the end of the year 2010, which gave a 6-month deadline at the time for the end of the UN protection on Iraqi funds, especially in the OPRA oil receipts account and its branches represented in the DFI account at the time.
The two protections ended successively between the years 2011-2013.
The question is, how have Iraq's funds continued to be protected to this day without prosecutions from potential commercial creditors?
In my opinion, the existence of the Kuwait war deductions on the mechanism of oil revenues continued to provide automatic (UN) protection for the account of oil revenues opened with FRBNY.
As for the account of the Central Bank of Iraq, which includes the reserves of the Central Bank in dollars, they are protected under the federal reserve laws that say that the funds of independent central banks with the Federal Reserve Bank (as an independent central bank) provide themselves with legal protection from any prosecutions, attachments, or seizures of commercial creditors because those funds are It is to preserve the monetary and financial stability of the country,
and there is a judicial precedent for Argentina in this regard, according to a decision of the New York Court on the day it rejected a call for prosecution raised by commercial creditors more than a decade ago.
3- Managing the Central Bank of Iraq’s external investment portfolio for diplomacy and efficiency.
The economic debate ends today about the Iraqi financial employment of its available reserves in the foreign currency referred to above, which is the funds of the Central Bank of Iraq specifically, whether they are deposited and their investments are managed with the US Federal Bank or other European or international central banks.
In essence, it represents the management of the investment portfolio of the reserves of the Central Bank of Iraq in foreign currency, which are mostly short-term investments (which are not public treasury surpluses, as some envision), and they are assets or (foreign assets) that support the Iraqi dinar issued as a national currency from the Central Bank, since the dinar (is the liabilities of its holder)).
Usually, those foreign reserves maintain their high liquidity or semi-liquidity in foreign currency and do not go into long-term investments, but rather with short-term and income-generating financial investments that make the foreign assets invested in a state of semi liquid cash, such as US or European treasury transfers with a term of 3-6 months.
Most of the countries have a very high credit rating of Aaa, or invest them in a fixed deposit for a specified period that can be broken or withdrawn when needed, or part of it can be kept in liquid form in a current account in one of the first central banks in the world.
Thus, central banking practices its applications and according to internationally approved investment guides in managing its portfolios and protecting its foreign reserves, which require that assets be liquid or semi-liquid and safe and cannot be converted into long-term, high-risk investments, as well as portfolio diversification, diversification, in various currencies and financial investment instruments such as bonds.
The foreign government with an excellent credit rating, in order to preserve the value of the investment portfolio from the risk of the exchange rate and the fluctuation of currency values, for example it is not permissible to invest in high-risk financial instruments such as buying shares of road construction companies or industrial companies and the like, or in fixed assets such as real estate and buildings, for example.
Long-term, material investments are among the tasks of economic policy in development and its sovereign funds, while central banks' investments in their foreign reserve assets are temporary and semi-liquid to ensure stability in the country's financial and monetary system together, according to its laws and objectives as monetary authorities.