A year on the rise in the value of the dollar
12/24/2021 | 11:16 am
books / d. Bilal Al-Khalifa ||
A year has passed since the Iraqi government decided to raise the value of selling the US dollar against the Iraqi dinar, so
the selling price of the US dollar was 1182 Iraqi dinars and it became 1460 Iraqi dinars, and
it is noteworthy that the official responsible for the exchange value and monetary policy is the Central Bank of Iraq, because it is the one who sells dollars and hard currency to banks and companies Banking and brokers.
After that, Parliament approved the Federal General Budget Law for the fiscal year 2021, No. 23 of 2021, which included the exchange rate of the US dollar at the new value, in Article (I-B),
and where the objection of some deputies to the exchange rate was rejected, considering that changing the price is not within the powers of the House of Representatives.
Rather, the Central Bank has complete independence in formulating and implementing its monetary policy, according to its new Law No. 56 of 2004, which allowed it financial, administrative and legal independence.
Where the law stipulates in Article (16-b) as follows:
Formulating policies that would achieve the main objectives of monetary policy, including the
exchange rate policy,
restrictions imposed on the operations carried out by the Central Bank of Iraq in the open market, the
interest rate policies that are imposed on the procurement of funds for the banking sector, and
all forms and levels of reserves that are required from diaper banks.
However, the board does not have the authority to join a fixed exchange rate regime such as a monetary union or a currency board)
The jurisdiction of the Federal Court over him
As for Article (63-4) a text that the Federal Court does not have jurisdiction over the Central Bank’s procedures regarding the exchange rate, and the text is:
(The court does not have jurisdiction to review decisions or procedures of the Central Bank of Iraq regarding the development and implementation of monetary policy, including foreign exchange rate policy).
The relationship of the House of Representatives with the Central Bank of Iraq
The Central Bank of Iraq Law No. (56) of 2004 stipulated in appointing the governor that he should have a “university degree at least and have a long professional experience and specialists in banking, economic, financial, commercial or law fields (M 12/1).
He has the rank of Minister and is appointed upon the proposal of the Prime Minister and the approval of the House of Representatives (Article 13 / A).
This means that the House of Representatives has a decisive role in deciding who will manage the Central Bank of Iraq.
As there is no explicit text about the subordination of the Central Bank to the House of Representatives, but the governor of the bank is in the position of a minister and is treated as a minister, and the House of Representatives can vote on him and hold him accountable as well.
Thus, the House of Representatives can hold accountable the deviation or bad decisions, if any, by the Central Bank of Iraq.
Among the points that are important to clarify here are:
The decision came at a request from the Ministry of Finance to the Central Bank of Iraq.
It came at a request from the Iraqi government, and this means that the government interfered in the work of the Central Bank of Iraq, and this contradicts Article (16-b) that we mentioned above.
The decision was made between the government and the active political forces
The Iraqi constitution talked about multiple bodies, some of which linked the executive authority.
As for the central bank, it is supposed to be subject to a certain authority, especially the parliament, that is, the legislative authority represented by the House of Representatives, because its association with the government is incorrect, as we have seen in past eras.
But a member of the Finance Committee, Rep.Magda Al-Tamimi said on Tuesday 16/3/2021 that changing the dollar exchange rate is not within the authority of the Finance Committee.
Everyone noted that the decision left clear damage to important segments of the Iraqi people, especially the middle and poor classes, and this led to an increase in the prices of consumer goods in the local markets and increased the suffering of the simple citizen due to the increase in the value of materials in the local market by 23%, and thus it harmed more than 60% from the Iraqis.
At the time, the Iraqi government had several justifications, namely:
1- Strengthening the financial budget by providing 23% of the salaries of employees who receive salaries from the government, such as retirees and daily wage earners.
2- The government could save between 20 to 23 trillion dinars as a result of the decrease in the real value of employees’ salaries, which rebounded to the benefit of the country’s operational and investment budget.
3- An increase in the size of the monetary reserve in the Central Bank or the maintenance of the current reserve.
4- Supporting industry and agriculture.
5- Reducing sales of hard currency in the banknote auction, and thus reducing the exit of hard currency outside Iraq.
What are the downsides to the decision?
1- The rise in overall prices in the country, for example, that real estate prices rose by about 50%, in addition to the fact that some foodstuffs increased their prices by more than 23%.
2- The high rate of unemployment and the level of inflation of large numbers that Iraq has not witnessed since 2003.
3- The annual inflation rate increased by 8% last November compared to the same month of last year 2020.
4- Iraqis lost confidence in the government, which was reflected in the rise in consumer prices at a rate much greater than the change in the exchange rate.
5- The value of the Iraqi people’s revenues in the public and private sectors decreased by 23%
6- The return of the rate of sales in the banknote market to its previous era, as the Central Bank announced that sales to the dollar on December 21, 2021 amounted to 197 million dollars.
1 - It should be noted that 90% of Iraq's consumer needs are imported, and that the government should have exempted raw materials (which are not available locally) entering the local industry from taxes and customs, thus reducing the burden on the Iraqi citizen.
2 - The increase in reserves by an estimated 15 billion dollars during the current year did not come as a result of the exchange rate change, but rather due to the recovery of oil prices globally, and therefore one of the justifications used by the Central Bank has vanished.
3- As for the point of support for industry and agriculture, it has two parts
A - Part of the industry is dependent on raw materials that are imported from abroad, and therefore the decision has harmed the local industry.
B - The exemption of goods from customs and tax, and I mean the agreement with Jordan, has harmed the local industry and made it unable to compete with the importer.
4 - One of the goals of this decision is to reduce the deficit, and one of the ways of that process is to maximize revenues, especially non-oil revenues, and the repeated exemptions on goods and commodities from composting and tax have violated this goal.
5 - The decision was made by the government and with the approval of most of the political blocs and parliament's approval of the federal general budget, which included the new price, and therefore they are the ones who bear the responsibility for that.
6 - The affiliation of the central bank to the government is incorrect and does not exist, but whether it is subject to the control or supervision of the Iraqi parliament, the issue is not clear and this must be determined.
The decision had some benefits for the government, such as raising the hard currency reserve to 64 billion dollars, as well as negatives in the Iraqi economy, such as the rise in inflation to 8.4%, according to a statement by the Ministry of Planning on 12/22-2021,
but at the same time it harmed many citizens.
They are from the poor and middle classes, and increased in unemployment and poverty.