CBI: Reaping the Success of its Monetary Policies
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CBI: Reaping the Success of its Monetary Policies
August 28, 2017
The Central Bank of Iraq operates in accordance with its strategy in monetary policy, which depends on two factors: First: to stimulate banks to move to the market and provide credit and bank financing, which requires the case of targeting the gross domestic product and address the aspects of unemployment and economic stagnation, which requires raising the financial depth of the country.
And second: to continue to address inflation and targeting through the price signals adopted by the Central Bank to target inflation, and achieve a unified framework of stability and economic growth desired.
The Governor of the Central Bank of Iraq, Ali Mohsen Ismail Alalak in his work, taking the steps of reform, administrative and executive, in a deliberate, systematic and scientific, which reflected positively on the management of the Bank and its work
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Which implements monetary policy in Iraq and aimed at achieving the stability of price stability, achieving an acceptable level of monetary and economic stability and avoidance Changes affecting the value of the national currency internally and externally, which arise due to changes in the general level of prices.
So it is very important to pay attention to and control the growth of money supply, much of the money supply will lead to high inflation to levels that could harm the economy, and a little of it, can lead to the disruption of economic growth, so decision-makers in the Central Bank of Iraq aspire to achieve a balance between Growth and inflation, through restrictive or concessional monetary policy.
The Bank controls restrictive monetary policy when it wants to limit money supply; concessional use is used when it seeks to increase money supply, while money supply is controlled by interest rates or by changing minimum bank reserve requirements.
Restrictive monetary policy has a positive impact on the currency because raising interest rates will attract new capital added to the economy, because high interest rates are usually a sign of a strong economy and investors are getting a higher return on capital they have in banks within the economy.
Monetary policy has a negative impact on the currency, because making capital readily available is likely to cause inflationary problems, which reduces the purchasing power of the currency and makes it less valuable, because lower interest rates mean that investors receive less return on capital They own it in this economy, and investors will go to invest their capital elsewhere, which will contribute to the depreciation of the currency.
Or by limiting the amount of money a bank can use to lend to consumers and businesses, by setting the minimum reserve for banks.
In light of this, the central bank avoided resorting to policies that would affect the general stability of prices and exchange rates and economic growth and therefore did not resort to the following options:
* Reduce its sales of foreign currency because it leads to the appreciation of foreign currency, which will harm the citizen, and directly affect creditors and investors
* Continue to respond to demand for foreign currency covered by (exchange rate stability, the decline of foreign reserves).
* Floating exchange rate is currently not possible in Iraq because the dollar source is monopolized by the government because of the nature of the economy and state resources.
Despite all the challenges, the Central Bank has achieved its most important objectives:
Price stability and inflation control: by continuing to reduce the inflation rate to reach the level of less than 2%, which is the lowest level reached in many years. This means stabilizing prices at a certain level. The concerns of monetary policymakers focused on eliminating the rate of inflation in prices to eliminate the economic and social expenditure of inflation. Therefore, achieving prices at the price level is the main objective of monetary policy. To achieve the most difficult circumstances.
Restraining inflation is necessary as it leads to uncertainty and confidence in the economy, affecting the low rate of economic growth.
Stability of the exchange rate of the local currency :
The exchange rate of the local currency is stabilized by achieving an acceptable level of monetary and economic stability, and avoids the effects of the value of the national currency that arises through changes in the general level.
Stimulating economic growth: in all sectors, which in turn generates an increase in national income and GDP growth; when monetary policy succeeds in achieving economic stability, driving production when money is raised in the market in a recession or reducing the amount of money in the market in the case of Inflation, thus contributing to economic growth rates, especially in sectors that have been unstable, leading to higher investment rates.
Supporting financial stability at the level of sustainability of public finances and the banking sector:
Experts believe that when the financial market is stabilized through the functioning of financial markets, the instability in that market can affect the state of the economy in terms of its stability and its ability to control the transfers of capital between the financial market and people's savings, based on that market is a market And stability in it affects the aspect of investment protection and growth, which leads us to say that the more stable the market was, the more likely it is that the central bank will be able to control monetary policy and thus stabilize the financial market. For the Central Bank of Iraq.
Achievements within these objectives are reflected in the following:
Coverage of public and private sector imports in foreign currency.
Thus, the purchasing power of the citizens whose income is often paid by salaries and government pensions is maintained. They depend on covering their import needs for most of what they consume or use, and preserve the rights of the creditors or investors, which are hit by inflation and suffer heavy losses.
Despite the significant drop in the dollar's revenues from exported oil, which reached around 70% in some months, the dinar remained stable and there were no significant gaps between the official exchange rate and the parallel market.
In 2016 standards were established (with the help of an international audit office) to enter banks and companies to the dollar purchase window in order to control the sale of the dollar, maintain the exchange rate and consolidate compliance with the rules of compliance and combating money laundering and terrorism financing. The banks in this regard and the construction of organizational and technical and technical units and capabilities to strengthen their systems and internal control, and maintain the level of adequacy of international reserves in accordance with international standards in the measurement of efficiency, and supports this level to maintain the exchange rate and meet the demand for the dollar.
The International Monetary Fund (IMF) estimates for reserves in March 2015, while the actual reserves as in the table below:
According to the agreement with the IMF signed by Iraq in 2008, all restrictions on foreign transfers have been lifted.
Stimulate economic growth
In order to move and support development processes in the context of recession, as a result of low government expenditures and increased unemployment under complex security and social conditions, the Central Bank has undertaken the following initiatives:
• Support real activities, lending private sector projects of specialized banks, 5 trillion Iraqi dinars to the bank (agricultural, industrial, housing and real estate fund). In the largest lending initiative in Iraq, and allocated 1.5 trillion Iraqi dinars to private banks to support small and micro enterprises , As the Bank is ready to expand this initiative, establishing a small-scale regulatory unit.
• The initiative of the Bank to pay the dues of contractors and processors and farmers (more than 5 trillion dinars), which affected the activity of the private sector and the banking sector, where the government approved the issuance of bonds proposed by the Central Bank and its systems, prepared and disbursed in coordination with government banks.
• Support financial stability on the level of fiscal sustainability and stability of the banking sector; to cope with the sharp decline in government revenues and the emergence of features of a major financial crisis under special circumstances facing the country and the difficulty of adapting to the emergency and sharp decline in oil prices; support the central bank stability and sustainability of public finances and (The government's revenues in some months of 2016 were less than 50% of salary coverage); the central bank played a key role in containing the crises; by buying treasury remittances (issued by the Ministry of Finance) by 16 trillion dinars in 2015 , 2016.
- The Central Bank provided support to the government by indirect funding of the budget, and the ability to pay the dues of the international oil companies for the permanence of oil production and export, and the failure to pay is a serious threat to the resources of the State, and the Central Bank of Iraq played a detailed role in the (credit program) International Monetary Fund since 2015, under which Iraq received soft loans and facilities of about 15 billion dollars.
- To meet the Bank's obligations towards the requirements contained in the program document (development readiness), including maintaining the general level of prices, addressing inflation, maintaining the exchange rate system, the precautionary measures, strengthening the control systems of banks and financial institutions, strengthening the risk-based governance and auditing in the Central Bank;
The obligation to combat money laundering and financing of terrorism and lifting restrictions on external transfer and legislative and regulatory amendments, including the amendment of the Central Bank Law and the obligation to audit its accounts and reserves and other activities of audit companies The Mechanism.
- Support the budget deficit in the amounts proposed by the Fund through the purchase of the central bank funds transfers, without which the budget can not be built, and thus depends on the Fund's program.
- Support and contribute to the realization of the terms of the agreement with the IMF as part of the reform of economic and financial policies and the construction of new rules and policies to rebuild the state budget to cope with financial crises and control over public expenditure and maximize domestic revenues and the provisions of control over public debt
And the development of financial indicators and targets related to the establishment of specific ceilings To the deficit and the public debt and expenditures within the measurement of gross domestic product, and call the central bank and the Ministry of Finance to establish one account of the General Treasury instead of an account for all government spending units to achieve management of the monetary asset and control and disposal of dispersion Cash and the use of non-moving money; where the Central Bank of the existence of large amounts (trillions) scattered in subaccounts are not used within the priorities and needs of the government, which leads the Ministry of Finance to borrow interest while the available available and can be directed from those amounts.
- Coordinating with the Ministry of Finance on diversification of domestic and external public debt sources, including issuance of local bonds to the public (for the first time) with a view to diversifying the deficit on one hand, deepening the financial market and introducing new tools; and establishing a permanent joint coordination committee between the Central Bank and the Ministry of Finance Coordination between the fiscal and monetary policies.
As part of the stability of the banking sector in the shadow of the financial crisis and its direct and indirect effects on the banking sector and thus on financial stability in general, the Central Bank has worked to limit these effects through the following:
• Conduct a comprehensive survey and review of the conditions of banks and limit the banks facing special difficulties in liquidity and the development of a program and urgent measures to be addressed and recovered the conditions of the vast majority of them to enhance financial stability in banks and avoid the risk of suspicious transactions, and obligate all banks to comply with the law against money laundering and terrorism financing No. 39 of the year 2015 and related regulations and rules, including the establishment of specialized units within the banks dealing with control operations, risk management and compliance.
• The Central Bank has made an important milestone in 2016 and 2016 in strengthening and strengthening relevant procedures and regulations that have been praised and supported by relevant international organizations including the FATF.
• Establishing a Financial Stability and Risk Management Unit to reduce systemic risk and take precautionary actions at the macro and micro levels supported by early warning systems, crisis response and financial stability through the development of mathematical models to determine the financial system's ability to absorb crises and perform stress tests periodically.
• Protect the banking sector from credit risk by building a comprehensive and integrated program that provides a modern and sophisticated database available to all banks to inquire about borrowers to make appropriate decisions about borrowers in order to ensure and stabilize the financial system. Basel Committee on Financial Control.
• Strengthening the governance system in the banking sector and issuing the first guide to institutional governance in the banking sector, which includes the principles, concepts and rules of governance in accordance with the latest international developments and practices to enhance the sound performance of banks, protect the rights of shareholders and stakeholders, and provide a sound management framework for banks that separates ownership and management and provides an appropriate framework for disclosure,
- Reducing the risks to customers in their financial transactions through the establishment of a comprehensive framework of policies and procedures to be taken in their organizational, regulatory, legislative, educational and educational dimensions. An organizational unit was established to carry out these tasks
- Completion of the legal, regulatory and financial procedures for the establishment of a deposit guarantee institution, which will be launched soon; in order to attract the money raised by the public and to enhance confidence in the banking system.
- In order to develop the financial markets, thus enhancing the financial depth and thus supporting financial stability, the Central Bank has developed procedures to settle the results of trading in the financial market through payment systems and the use of the system of buying and selling securities and establishing effective mechanisms to strengthen central storage systems and settlement and work to reconcile the settlement system Trading securities with payment systems.
The post and functions of the Central Bank of Iraq, after 2014 is to focus on:
Total Quality: This means continuous development of the administrative processes by reviewing and analyzing them and searching for means and methods to increase the performance and reduce the time to accomplish them by eliminating all unnecessary and unnecessary tasks and functions for the customer or the process.
Financial stability: The Central Bank of Iraq actively contributed to strengthening the performance of the banking sector on the basis of international best practices to expand its activities and develop its services. This strengthened the stability of the financial sector in Iraq as the largest and most vulnerable component of the banking sector. The Central Bank of Iraq focused on the policy of continuous communication with the units of the banking system and create conditions to create a banking environment supportive of monetary stability, and to find an effective and developed national payment system, in addition to the duties and functions and powers Which is enjoyed by the Central Bank and its permanent ability to intervene in the institutions of the system through the possession of monetary tools and control.
Financial Coverage The Central Bank of Iraq is concerned with the social aspect in terms of the greatest interest of the poor and low-income groups, with special attention to women and access to individuals and small and medium-sized enterprises and to achieving the public interest related to creating opportunities for the client, thus contributing to economic growth, Income, raising living standards and providing financial services in easy, simple and cost-effective ways (such as mobile payments).
The role of the Central Bank in enhancing financial coverage:
- Establishing rules and legislations aimed at facilitating the procedures of banking transactions in all their forms, and approving the provision of simplified financial services such as the use of mobile phones in electronic payments and other financial operations, highlighting the role of credit query and development of payment systems, and stimulating the financial sector and especially banks to spread the financial culture. ATMs and any other means that would expand the network of banking services.
- Establishment of comprehensive databases that include historical credit data records of individuals and small and medium-sized enterprises as well as a database recording movable assets.
Risk-Based Audit: Activity means internal audit and quality control, follow-up of pending matters in internal audit reports with management, and validation of corrective plans
Microfinance: Where the government is trying to implement important political reforms as military operations continue against an advocacy organization, microfinance - in its widest sense - including loans, savings, payments and insurance for low-income families and small businesses - is one that can encourage domestic economic activity and help People to manage their setbacks, or economic shocks because of the difficult situation in the country.
Financial risk management: The relationship between the return on investment and the risks associated with this investment, with the intention of employing this relationship, which maximizes the value of the investment from the point of view of its owners and can also be defined as the management of events that can not be predicted by developing a strategy that includes appropriate policies and procedures Its constantly updated.
Precautionary control: defined as the policy by which systemic risks are identified, controlled and controlled to reduce their accumulation and enhance the financial system's ability to withstand shocks by using a set of tools based on a set of core indicators; systemic risks: risks of developments that threaten the stability of the financial system and hence the economy In full.
Anti-Money Laundering and Terrorist Financing: Iraq has made significant progress over the last two years in the field of preventing money laundering and financing of terrorism through the issuance of a special law No. 39 of 2015. This law has greatly regulated the process of transferring money and combating money laundering, and established a separate office separately from the Central Bank And is financially responsible for receiving notifications of suspicious operations. "
The Association of Banks held intensive courses on anti-money laundering, where more than one hundred trainees graduated from the beginning of 2017 and launched the "Central Bank of Iraq" program financing small and medium projects after allocating one trillion Iraqi dinars to private banks, adding that the funding of these projects at the level of The ambition was that there were a lot of obstacles inside and outside the bank, most notably that government institutions refuse to provide banks with bail for their employees.
Electronic payment: It means a set of means and procedures and rules for the transfer of funds among participants within the system that the transfer of funds through the infrastructure of payment systems.
Customer Protection: All laws and judicial provisions designed to protect consumers from exposure to fraudulent transactions and fraud that may be faced by some traders. It is also known as the set of social and ethical controls imposed on all workers in commercial sectors and obliges them to respect all categories of consumers , And provide goods, services to them in a proper and appropriate manner.
Compliance: This is an independent function, approved by the Banking Law No. 94 of 2004, which affirms the Bank's commitment to its daily banking operations, the laws and regulations issued by the Central Bank and the Financial Authority, as well as the policies, procedures, instructions and accounting standards. Money laundering and instructions issued thereunder, the legal and standard rates of credit or investment operations, legal reserve, etc., for the purpose of verifying the correctness of the procedures and avoiding all that would expose the bank to various risks.
Economic Unit
Link Center for Research and Strategic Studies
http://rawabetcenter.com/archives/50847
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