Necessary measures to strengthen the Iraqi dinar.. deleting zeros or flotation

Necessary measures to strengthen the Iraqi dinar.. deleting zeros or flotation








The process of strengthening the Iraqi dinar requires appropriate conditions, procedures, and legislation.




The issue of the exchange rate in Iraq is still raised from time to time, and whether it can be restored to its previous state, but government officials say that this is impossible because of the dire consequences that economists believe can take place through a series of procedures related to gold reserves and budget deficits.




The economic expert, Malaz Al-Amin, said during an interview with Al-Alam Al-Jadeed that “the strengthening of the dinar is carried out according to several steps, including increasing the Iraqi gold reserves in the US Federal Reserve System, depositing excess oil revenues in the Federal Reserve as well, and printing the currency in an amount equal to the gold reserves.”




Al-Amin explains that “the pricing of the dinar from the government constitutes an obstacle to its strengthening, because everything is in its hands from the market movement, import and export.”




Pointing out that "the Central Bank is the only source of dollars in the Iraqi market, and it is he who determines its price."




The technical advisor to the Prime Minister, Haitham al-Jubouri, had spoken two days ago in a televised interview about the difficulty of restoring the strength of the Iraqi dinar against the dollar.




He pointed out that "we have to say how the strength of the Iraqi dinar can be restored against the dollar, but not by a government decision, and this matter is achieved through supply and demand."




In late 2020, the government announced a change in the dinar exchange rate from 1182 dinars per dollar to 1450 dinars per dollar, which sparked a great wave of popular discontent, especially after the rise in prices of basic foodstuffs, and this matter was confirmed in the federal budget was voted by the House of Representatives on 31 March of 2021.




Floating the currency does not work




For her part, the economic expert Salam Sumaisem states, “The strengthening of the dinar is through reducing the deficit in the budgets, such as reducing the trade balance deficit. When we have large sums of dollars as a result of oil surpluses, it is assumed that the old woman and the debt will be filled.”




Noting that "raising the central bank's reserves also contributes to supporting the dinar and giving it more strength, especially, through the bonds offered and the ability to cover our currency."




Concerning the extent to which currency flotation contributed to strengthening the dinar, Sumaisem showed that “the flotation means that the state leaves matters to market forces, supply and demand without any interference from them, and this procedure is not feasible in light of the rampant corruption and the dominance of corruption whales on huge amounts of the dollar.”




Adding that "there was a proposal to delete the zeros from the dinar, but it was not implemented."




Iraq has suffered since the nineties of the last century, and during the imposition of the economic embargo on it, a large inflation in the currency, which prompted the former regime to go to print it locally.




After 2003, the previous currency was destroyed and new denominations were issued, and its exchange rate was fixed against the dollar by the order of the civil governor of Iraq at the time, Paul Bremer, who revealed the shape of the new currency and its exchange rate against the dollar.




Several options were put forward to control the financial crisis, including printing new cash denominations, including 100,000 dinars, or deleting three zeros to control the rise in the value of numbers in cash transactions.




But according to economists who spoke previously, deleting zeros from the currency is a “formal” procedure and does not lead to solving the problems of the Iraqi economy, but rather it will burden it with the procedures for printing the new currency.






Last April, the Federal Court rejected a lawsuit before it regarding the devaluation of the dinar against the dollar in local transactions. The importance of stabilizing the security and political situation




In addition, the journalist specializing in economic affairs, Ali Karim Ithib, points out that “one of the factors of the strength of the national currency in Iraq is the stability of the security and political situation and the enactment of laws that encourage and support the private sector, in addition to encouraging the entry of foreign investments and encouraging the return of competencies to contribute to building the economy.”




Etheb continues, "More than 90 percent of the 228 factories are completely shut down in Iraq, and their return to work and production effectively contributes to strengthening the dinar."




Pointing out that "deleting zeros is a complex process, and it can cause harm to middle and low wage earners, because they will receive money with a force less than their purchasing power and have a value lower than their nominal value, unless prices are treated in the markets in line with the currency with deleted zeros."






It is noteworthy that the resigned Finance Minister Ali Allawi announced last May that the devaluation of the Iraqi dinar led to the preservation of foreign currency reserves with the Central Bank of Iraq after the low and critical levels that it reached in late 2020.






The recovery in oil prices and “wise” financial management helped the financial reserves to reach $70 billion by last April, and the continued recovery of oil prices is expected to increase these reserves to more than $90 billion by the end of this year.








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