Thread: Do you sacrifice the stability and the central bank raising the zeros?

Opinion Piece

April 20th

the effects of the global financial crisis on the Central Bank of Iraq

Maithem Laibi Ismail
Civilized dialogue

Do you sacrifice the stability and the central bank raising the zeros?

Some believe that the financial crisis affected the Iraqi economy only through the reflection caused by the decline in oil prices in the successive reductions in the budget of 2009, and as Iraq's economy is dependent on the oil yield in the financing of expenditures, it is their view here that the repercussions of the crisis on the financial instruments of public only, and there are no implications for monetary instruments, and this team goes beyond that to argue that Iraq did not acquire the securities market with the advanced capitalist market economy has further adverse effects on total, which faced many of the economies.

Say that the financial crisis affected the world as a whole, the effects on the Iraqi economy are deeper than those effects, the question we ask here is: The financial crisis will affect and change the outlook for the monetary authority of the representative of the Central Bank of Iraq?

The answer to this research requires more than trying to changing the central control, to be one of the most important of these variables is the local currency and value, from here we will focus on two axes in this regard, the first relates to the system of the exchange rate applied, and the second is linked to the decision to be the three zeros done in the future.

Say; and fairness, that central to a large extent able to choose a proper drainage system, which was able to maintain the stability of the value of local currency against the dollar, through the use of daily currency auction, which the buyer down the Central Bank of the dinar in exchange for pumping dollars into the market, and improve Iraqi dinar gradually and continuously, thus a guarantor power of the Iraqi dinar and expelled him from the specter of fluctuations, which was facing the Iraqi dinar, which was prior to 2003 reflected the volatility of the economy as a whole, from here say that the CBE has been successful in the exchange rate policy, and for such period, the only remaining question challenge now is to what extent can the Bank to maintain and support the lifting of the value of the Iraqi currency against the dollar?

Here, jump to mind the nature of the relationship between the global financial crisis and the Central Bank of Iraq, there is a strong link between the Central Bank and the global crisis and the resulting decline in oil prices, the goods financed by the President, the Central Bank of dollars, those dollars through the Bank managed the composition of foreign reserves which amounts to more than 21 billion dollars, which obviously worked in the promotion and strengthening of the Bank's stance in maintaining the value of the Iraqi currency, and in the same dollars that the bank manages the daily currency auction, we say here that the central bank and to the continuation of the fiscal crisis and the resulting survival oil prices in the low levels, it would be two possibilities, one is prejudice and sacrifice Bahtiatath which accumulated in foreign currency, warn of the danger of this is a red line which we consider unacceptable the crossing, the local currency will be open and without cover, the other possibility is to sacrifice to preserve and improve the stability of the dinar through the sacrifice of the Iraqi currency auction, and this is unacceptable to the other of Rjuana might bring to the situation of chaos in the exchange market, the Iraqis before 2003, both of which affect; outcome, a negative impact on the role of the Central Bank of Lesotho guest grants stability and performance in the national economy.

The task of the central bank is not easy, in a range of parameters such as the global financial crisis and management of the economy of oil in the state, ramping up to a free market economy and emerging from the womb of the worst political crises and internal security.

From here on, the central careful search for a way out of this crisis, and the selection of a stable exchange rate system more flexible and more responsive to the requirements phase, we are here not to go too far in a campaign central to the policy which we consider prudent over the past years; also to do so multilaterally Now, we squeeze by the central in the search for novel ways wise and long-term goal of combining economic stability, which is the inherent purpose and goals of the approach flexible exchange rate regimes and managed.

Another question that jumps to mind is: Is there any effects of the global crisis to review the project three zeros from the lifting of the Iraqi dinar, which the parties had begun to promote a number, such as the Central Bank of Iraq and the Ministry of Finance?

It seems that the answer to this question will not be easy, I say this because the implications of the crisis on the Iraqi economy is difficult to monitor the state of the final results of which, besides the impact of the crisis on the decline in oil prices has led to serious implications was the review of the general budget in terms of restructuring expenses and the reduction of such expenditures to more than once in the 2009 budget, it is difficult to predict the effects of such crisis on the Iraqi reality.

Is well known that it was a proposal from the Ministry of Finance to the Central Bank to lift the three zeros from Iraqi dinar, which has been approved by the Central Bank, where he spoke on the last long-term strategy aimed at improving the situation of the Iraqi currency, through the deletion of three zeroes, and the strengthening of systems of payments Consistent with the economic development in the country.

The question now is, "Will this project still exists and could come into effect under conditions of global crisis?

That the answer is likely to be negative, the global situation is in a state of instability and financial crisis caused tremors among the key economic life of Iraq, while the decision to lift the zeros must be in a stable economic environment, and such a decision is not only already After experiencing the currency Thassanna and stable in value, both of which is not available in light of the crisis and its repercussions, the economic Valmngirat likely continue to be unstable for some time which may extend to the end of 2010, and as long as the lifting of zeros on the dinar, as the promoters Essentially, the idea, had nothing to do with inflation and it is just a psychological issue, we believe that any action by the Central Bank in this regard under the circumstances of global psychological shipped will not even achieve the desired objective.

So, it seems that the central and financial re-consider the matter, and before we ask, does the Iraqi economy has already arrived to the hyperinflation crisis enough to warrant the deletion of zeros?

Say that the answer to that would have been negative as well, and our guide on this is simple and comes from the nature of the decision to lift the three zeroes itself, and I (three) zeros, this means that the value of the Iraqi dinar did not amount to a serious deterioration, did not pass the Iraqi economy varying from hyper-inflation, has also seen some of the States embarked on this experiment, such as Turkey, which was deleted (six) zeros from the Turkish lira to one million Turkish lira lira equal to one, but on the contrary, we find that inflation in the Iraqi economy has started to take a very moderate rates especially after the years 2005 and 2006 which saw the biggest waves of inflation.

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