Adel Abdul Mahdi comments on changing the exchange rate of the dollar and makes several proposals
5,137 Policy 12/21/2020 18:59 ht
Baghdad today - Baghdad
Former Prime Minister, Adel Abdul-Mahdi, Monday, December 21, 2020, commented on changing the exchange rate of the dollar that the current government recently made, while he made several proposals to get out of the economic crisis that the country is experiencing.
Abdul Mahdi said in an article he published on his Facebook page, which he (Baghdad Today) followed, which included the following:
The exchange rate, treasury and budget crisis
1- The asset is historically in currency, it is a commodity.
People exchanged their goods and services for the goods and services of others.
2- Markets expanded, goods and services increased, and it was no longer practically possible to deal as commodity for commodity.
So people turned to commodities that are easy to carry, preserve and fragmentation, so they were metal goods.
A coin was born of gold, silver, copper, etc., which bears its value with its value.
3- Transactions increased, so people began to keep their gold or minerals in houses, and issued a document or certificate of the value of their mineral assets of gold and silver.
Banks and banknotes covered with storage, reserves or metal cover were born, and they became the "equivalent" in which the values of goods, services, business, etc. are balanced..
4- Financial houses or banks noticed that people who deposit gold or silver with them do not withdraw their money at once, but rather that the bulk of it saves it, which allowed it to issue banknotes without having a real cover.
That is, it invests the money of others, and achieves profits for itself that far exceeds the profits of the commissions that it collects from depositing money with it.
5- Economic life has evolved further as the understanding and experience has developed among households, banks, governments and states, that is,
everyone who represents the monetary authority is that the lesson is not with the metal but in the transactions of goods and services that are produced and traded by people.
And that the currency is nothing but an equivalent that has become acceptable to people, for what is equivalent to the value of these transactions.
And the duty of the monetary authority is to issue papers equivalent to the need for streamlining and good circulation of goods and services.
If you issue more, there will be inflation, and if you issue less, there will be deflation.
Or what “al-Maqrizi”, a son of the fifteenth century, called “money boom” for the first, and “money depletion” for the second, with the large number of sultans at that time blocking the deficit of their coffers by using “kaghad” as a pledge to pay, or what we today call securities.
6- Commodity or metal currency carries its value with it, so people are reassured about it.
As for paper money, confidence in it must be generated in order for it to stabilize and become an essential tool for trading.
People will be happy if they wake up one day and find that the value of their currency has risen, and this is a small matter, but they are often shocked and sad when they wake up one day and find that the value of their currency has decreased, and consequently their assets and real purchasing power have declined.
In addition to that, the markets and economic activities, especially the medium and long term, need to stabilize the value of the currency in order for people to offer to deal with it and not with others.
7 - In sum, the currency reserve or its cover, which was in the past a "previous" condition for issuing paper currency, has developed in recent decades - especially after the abandonment of the gold standard according to "Bretton Woods" after World War II, as well as in the early 1970s, after the dollar departed from gold.
To the possibility of becoming a true "after" for the issuance or offer of the currency.
The reserve or the cover has been gradually transformed in most of it into a hypothetical state and into ratios and equations to determine the size of the currency supply, which should meet the need for the movement of production and circulation of goods and services.
Not every issued monetary unit necessarily has its equivalent in real reserves.
Numerous theories and practices emerged that go to abstraction and assumptions rather than to remain automatically committed to reserves and their values.
Banks and monetary authorities began issuing currency in its various forms and granting banking and credit facilities without cover or corresponding reserves.
Some of these issues are justified and legitimate, and some are unjustified and unlawful.
8- Justified and legitimate because it brings benefits if he goes to the world of transactions and produces more goods and services that will bridge the gap between the reserve or default cover with the monetary mass and the currency supply, then the balance that was disturbed will return after a period of time.
It is like deferred and urgent payment, which are the focus of the value of the work presented.
9- It is unjustified and unlawful, so it brings harm if it goes to speculation, enrichment, usurious tendencies, collecting money and excessive unbridled inflation, without all of this being matched by real work and production of goods and services,
so the gap between the size of goods and services and the supply of currency increases,
so crises occur and the currency’s value collapses as it collapsed before 2003
Rather, people lost confidence in them and dealt with foreign currencies that they trusted more.
So we have a "Rank Xerox" dinar, the Swiss dinar, the dollar, the Turkish lira, the Iranian riyal, and so on, which cost us a lot before we restore confidence in the dinar and unify all transactions and national accounts accordingly.
10- In Iraq, despite the claims of all of our systems that we have passed through during the current and previous century, that we have liberated and liberated our national currency,
but we are still working with old practices when the dinar was linked to the sterling pound, that is, our currency is not linked to the production of all the goods and services that we produce, but rather is linked to a cover,
Today, the dollar basically, which the Central Bank has reserves estimated at the beginning of 2020, is approximately $67 billion, which puts Iraq in third place in the Arab world, and gold bullion (we have 96.3 tons of it and are ranked 35 globally and fifth in the Arab world)
The reason for this is that we are an oil rentier country, and oil is sold in dollars.
Therefore, our reserves, which are the main indicator of our cash issuances, depend on what we have mainly dollars or foreign coins, or what we buy and store of gold, must be sufficient for at least half a year of necessary imports for the country according to International Monetary Fund Equations.
11- The budget depends on that, and the economy depends on that, and the salaries, rights, and entitlements of farmers and contractors all depend on that.
In short, the markets as a whole depend on that.
When the blockade was imposed and oil exports stopped, the dinar fell from 0.333 dinars per dollar to 3,000 dinars per dollar.
And when oil prices decrease or our exports decrease, everything retreats and an equivalent national economy does not stand in front of it that can overcome the crisis and avoid its repercussions, and protect the national currency, which is a basic address of sovereignty and independence.
12- That is why we structured the International Monetary Fund or structured ourselves in front of the Monetary Fund according to this fatal equation, which has no way out if we do not address the monetary reality with the economic reality.
The monetary truth became absolutely stifling and a barrier to economic reality.
While the correct view is that the economy is the basis, not currency or cash.
And that the currency should be serving the economy and not vice versa.
13- That is why our economy continued to adopt the cash economy, with great wealth standing outside the banks, afraid of arbitrary measures to make these funds closer to the spread of corruption and to hoarding them for investment, launching expanded production cycles and achieving progress and sustainable growth.
That is why the so-called Narrow Money or paper currency remained the basis, so bills of exchange and digital and electronic currency disappeared, rather the use of bonds declined, savings retreated, and most of the currency became outside the banking cycle, so the real mechanisms of saving and investment were absent with it, and the credit role of the banks as a financier of projects disappeared.
Her only concern is currency speculation to achieve profits.
14- In recent years, oil resources are 40-60 billion dollars annually, and the gross national product is 5-6 times this number, meaning there is an important part of the gross national product, or national income, or the total production of goods and services produced nationally, whether based on oil resources Or non-oil.
15- Here we can make a breakthrough to move the economy and support the national currency and reduce the risk of absolute dependence on foreign currency, by encouraging the state, and with its direct and indirect guarantees, for means of payment in the so-called Broad Money (M2, M3, M4) that is currently almost frozen And practically uninvested.
When activating these trends and granting them confidence and protection, we will provide large liquidity needed by the economy, treasury and budget, which will be covered and paid off by the expansion of economic activities.
16- We say frozen because part of the liquidity that will be provided by increased facilities in the "broad currency" will come from the goods and services produced outside the oil resources, which will later bridge the gap between the currency supply and its cover or reserves.
17- But for success in that, there are conditions that seem possible and the economic authority can adopt them with relative ease, provided the minds accept them.
In Iraq, there is an important "effective demand" caused by the large number of spending, which is now being met through imports and the increasing need for foreign exchange.
In Iraq, there is experience and productive capabilities that have been disrupted by wars, blockades, and erroneous rentier and non-rentier economic trends.
Especially in the needs of which the "marginal tendency to consume" (the predominance of essential consumption spending) is a basic component of it.
This "effective demand", most of which is for people with limited income, can be financed initially through "broad currency" and with direct and indirect sovereign guarantees, even if they do not have cover or initial reserves corresponding to them.
Under certain conditions, the demand here can move the subsequent national production, which will bridge the gap, restore the balance, and make the "broad" national currency in exchange for or equivalent additional goods and services.
Thus, activities, production, markets and employment move, and a new expanded production cycle is created that feeds the economy and helps to increase reserves, finance the treasury and the budget with more national currency and fulfill what the guarantees sought to achieve,
thus reducing dependence on foreign exchange (mainly the dollar) and increasing the proportion of the non-oil sector output in output National gross.
18- As for the conditions, they make the establishment of small, medium and large enterprises, individual and collective, national and foreign, and the granting of licenses and facilities a priority in front of which all unjustified anomalous obstacles will recede, so that philosophy is the priority of starting and not restraining.
There are many legal, bureaucratic, societal, political, intellectual and formal obstacles, both internal and external, that only serve to increase extortion, holidays and corruption.
And attention to outputs as a priority and criterion for success in contracts and business, and to provide the necessary inputs, whether in government contracts or private projects.
And the protection of production and producers, whether by protection measures whenever possible, or by encouraging and promoting the product, providing financial assistance, allowances, exemptions and support, and all that is required to succeed in that.