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guardian
01-17-2010, 10:49 AM
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The effects of global financial crisis on the Iraqi Central Bank


Maytham Laibi Ismail


Modern Discussion


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 low oil prices in successive reductions in the budget of 2009, on the grounds of Iraq is a cash economy depends on oil to finance its expenditures, from here, they argue that the crisis impact on the financial instruments of public only, and that there are no implications for monetary instruments, and this team goes beyond that to argue that Iraq did not acquire securities market developed with which the capitalist market has kept the economy from the adverse effects of inter faced by many economies.


Say that the financial crisis as it affected the whole world, the impact on the Iraqi economy is deeper than just those effects, and the question we ask here is that the financial crisis will affect and change the outlook for monetary authority represented by the Central Bank of Iraq?


The answer to that required searching for more than the central variable is trying to control it, that one of the most important variables is the local currency and its value, from here we will focus on two axes in this regard, one relating to exchange-rate system is adopted, and the second is linked to the decision to raise the three zeroes to be done in the future.


We say; To be fair, that the CBE could quite proper selection of the drainage system, through which he maintain the stability of the value of local currency against the U.S. dollar, and through the use of daily currency auction, under which a buyer down the Central Bank of the dinar against the dollar to the pump market, improve the Iraqi dinar gradually and continuously, assuring the force of the Iraqi dinar and jettisoning him from the specter of fluctuations, which were confronting the Iraqi dinar, which was prior to 2003 reflected the volatility of the economy as a whole, here are certain that the CBE has succeeded in exchange rate policy and that during the period, but the question that facing us now is to what extent can the bank to maintain the lift and support the value of the Iraqi currency against the dollar?


Here is what comes to mind the relationship between the global financial crisis, 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 main item financed dollars the central bank, it is through those dollars, the bank composition of foreign reserves amounting to more than $ 21 billion, which clearly worked to promote and strengthen the bank's position to maintain the value of the Iraqi currency, and during the same dollars that the World Bank manages the daily currency auction, we say here that the central bank and to the continuation of the financial crisis and of its survival oil prices in the low levels, he will face two possibilities, one is prejudice and sacrifice its required reserves accumulated foreign currency, we should point out the seriousness of this matter, which we consider to be a red line crossing is unacceptable, the local currency should be open and without cover, Another possibility is sacrificed to maintain and improve the stability of the dinar through the sacrifice of the Iraqi currency auction, and this was also denied causing a Rjuana to the chaos that was taking place in the exchange market of Iraq before 2003, both of two things will affect; After all, a negative impact on Central Bank's role in the performance of his guest and the stability of the national economy.


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


Hence, the CBE careful search for a way out of this crisis, and selection of an exchange rate stable, more flexible and more responsive to the requirements phase, we are here do not go as far in the campaign on the policy of the Central, which we consider prudent over the past years; as deliberately to that multiple parties now, but we squeeze by the central in the search for novel ways wise and long-term goal of combining economic stability, which is its original approach and goals of the flexible exchange rate regimes and managed.


Another question that jumps to mind is: Is there any effects of the global crisis to re-examine the project of raising three zeros from the Iraqi dinar, which was several parties have begun promoting it, such as the CBI and the Ministry of Finance?


It seems that the answer to this question would not be easy, I say this because the implications of the crisis on the Iraqi economy is difficult to monitor any definitive conclusions thereon, Aside from the impact of the crisis on low oil prices, has led to grave consequences was to review the budget in terms of re restructuring expenses and reduce those expenditures to more than once in the 2009 budget, it is difficult to predict other consequences of that crisis on the Iraqi reality.


Well known that it was a proposal by the Ministry of Finance to the Central Bank to lift three zeros from Iraqi dinar, which has been approved by the Central Bank, where he talked about the recent long-term strategy to improve the situation of the Iraqi currency through the deletion of three zeroes, and the strengthening of systems of payments Consistent with the economic development happening in the country.


Ask here is that such a project is still valid, and could enter into force under conditions of global crisis?


That the most likely answer is negative, the World The situation is in a state of instability, and that the financial crisis shook inter joints economic life of Iraq, while the decision to raise zeros must be in a stable economic environment, and such a decision does not come originally only After experiencing the currency Thassanna and stable in value, both of the two are not available in the continuing crisis and its implications, economic Valmngirat likely to remain unstable for quite some time which may extend to the end of 2010, as long as raise zeros from the dinar, as argued by promoters idea essentially has nothing to do with inflation and it's just a psychological issue, we believe that any action by the Central Bank in this regard in the current international conditions, mental shipped will not even lead to achieving the desired objective.


So, it seems that the central and has restored the financial consideration of the matter, and accepted, we wonder, was the Iraqi economy has reached a crisis already rampant inflation to warrant the deletion of zeros?

Say that the answer to that could come negative as well, and our guide on this is simple and comes from the nature of the decision to lift the three zeroes itself, I confirm (three) zeros, meaning that the value of the Iraqi dinar did not amount to a serious deterioration, did not pass the Iraqi economy degrees of hyper-inflation, has also seen some countries that embarked on this experience, like Turkey, which had been deleted (six) zeros from Turkish Lira to become a one million 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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