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Dr.. The appearance of Muhammad Saleh: * Intersection of paving functions in Iraq At the point of market parity

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Dr.. The appearance of Muhammad Saleh: * Intersection of paving functions in Iraq At the point of market parity

The Central Bank of Iraq is uniquely the power controlling the inflexible supply function in the foreign currency market in our country to face the function of relatively flexible market demand for foreign exchange continuously without interruption and under any circumstances.

The continuous intervention of the Central Bank in the exchange market and protecting the stability of its rates is part of its monetary policy, which is still known as the art of managing expectations to serve as a tool that absorbs the momentum of a sudden drop in the value of the Iraqi dinar and by 20% relative to the dollar of the United States of America, which is the reduction in the state of deficit.

The current account of the balance of payments amounted to about (-20%) by the end of the year 2020 also according to the preliminary estimates released by the International Monetary Fund at the end of the aforementioned year, and the demand for foreign currency has decreased in the past few years, that is, since the date of 19-12-2020 (Which is the date of the brotherly devaluation of the Iraqi dinar) came for my reason:

First, stopping or obstructing the purchase of foreign currency from the central exchange market (i.e. the auction or window) at the new exchange rate of 1450 dinars / dollar, and that absorption of the surprise or price shock due to the decrease in the exchange rate at one time by 22% as the reduction came in the manner of (shock) and the birth of A case of the uncertainty of market makers and dealers, causing trends

A price in which the rates of price risk in general and the exchange rate in particular increased, as well On the defect in the means of settling the debt and the rights arising between the parties of the dealers after that a Freeze transactions (spot) for sale and purchase in foreign currency, except for that To settle (forward) transactions between credit and debit forces in the same foreign currency.

Secondly, it resulted from the strength of the Color Information Market and the rumor agency that has been operating as an influential and confusing color noise information during the past few weeks and speculation in the discussions of the Iraqi Parliament regarding the controversy over the exchange rate of the Iraqi dinar in the federal budget for 2021 and speculators' aspiration to the possibilities.

Adjusting the exchange rate of the dinar to reach 1,300 dinars / dollar for budget purposes and back again, as the Central Bank of Iraq deals with again.

Despite this, the House discussions did not appear For the draft federal budget law for the year 2021 that there is a strong intention for the one who suffers from the exchange rate and to raise the value of the Iraqi dinar against the US dollar from 1450 dinars / dollar to 1300 dinars / dollar, except to collect the signatures of a number of women members of the House of Representatives for the appeal to amend the price and make it 1300 dinars / dollars as they are still The information is invisible that constitutes the new direction for determining the price in the exchange market.

Based on the foregoing and due to the parallel market adjustment of exchange and creeping gradually over the past five weeks towards a parity point adopted by the central exchange market, dealing with the fixed exchange fee rate, as the market began to decrease its rates Compared to the (central) exchange rate adopted in the window of the Central Bank of Iraq recently,

which confirms that the market has dealt with the strength of the central bank’s signals by changing its expectations, absorbing (the price shock) and returning to its near-normal position, asking for foreign currency from the central bank’s window in an escalating manner, especially after it The official authorities announced the payment of employee salaries, pensions, etc., according to the times specified in January 2021,

which means that the routine exchange forces in the Iraqi dinar have resumed their usual spending activities in the economy as a continuous effective exchange force, which will form a wave of massive demand for foreign currency from The window of the central bank in the coming days, and this is what increases the Central Bank’s sales of foreign currency from $3 million to $112 million, surprisingly!

With regard to the beginning of the stockpiling of commodities to diminish after realizing the increases over a period of a little over a month from the date of the exchange rate decrease, the dominant activity of the private sector has started its business after it prepared the decree of settling its inter-debt and stabilizing the means of financing its trade Foreign again.

Consumer imports account for about 85% of the country a The needs of the Iraqi local market, as well as the importance of the continued flow of imported production supplies, do not constitute one of the main operational bases for the outputs of the local production itself (whether the inputs under consideration are spare parts or various raw materials, etc.).

For example, the requirements for the production of imported local table eggs constitute about 75% of the value of the product, which is a commodity that falls within the scope of production, lives in the local Iraqi agriculture.

Certainly, the decrease in the exchange rate of the Iraqi dinar against the dollar, which amounted to 22%, will be reflected in the form of imported inflation on the prices of goods and services.

Directly on imported materials and indirectly on the local product, goods and services, and price increases may vary (above the limits of the decrease in the exchange rate above) depending on the first two main factors: the first, customs duties and income tax on The profits of importers and the country are directly transferred to the consumer prices in different rates (in addition to the decrease in the exchange rate of the dinar itself).

Third, what is called the price elasticity of demand for imported goods and services.

If the price elasticity is high (that is, a small price increase leads to a greater decrease in demand), then the transfer of the burden of customs duties and taxes on the shoulders of the consumer will be less compared to the low elasticity goods that are required by the consumer if it rises.

The price of it, and we mean by it in particular specifically commodities, food and medical materials and other commodity requirements.

In order to avoid the effects of imported inflation and the effects of customs duties and taxes related to the sectors of consumers at the same time and their effects on the standard of living, it is necessary to amend the customs tariff schedules in a manner commensurate with the flexibility of The aforementioned price demand.

Whenever the price elasticity of demand is low (that is, demand is inelastic), the customs duty must be adjusted towards lower rates significantly, and here we mean specifically food, medicine and other commodities The same direct prejudice to people's lives and vice versa.

Noting the importance of the PDS ration card and its livelihood role, as it represents food support For the poor and poor classes, they are targeted by social welfare and poverty alleviation programs to ensure a standard of living that guarantees the citizen’s life.

In conclusion, the fiscal policy must play its social role in the distribution of combating potential inflationary activities on lower-class and middle-class consumers due to the low exchange rate of the dinar, the related fees and taxes and avoiding their effects (as a positive inflationary tax) and turning it into a negative (negative inflationary tax). inflationary tax on the social forces and groups of the poor or those with limited monetary income and compensating them for the results of the exchange rate decline and its inflationary developments.

As The demand for food and basic necessities is high among the poorer classes And the limited income that meets the bulk of their available cash income for these large seas From society and through poverty, it currently accounts for more than 30% of the country's population

(*) Academic economist and writer, financial advisor to the Prime Minister of Iraq and former Deputy Governor of the Central Bank of Iraq.
The copyrights are reserved for the Iraqi Economist Network. Active re-activation is allowed
Source. 2 February 2021
http://iraqieconomists.net/

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