An Economist "Limits" The Solution To The Exchange Rate Problem To One Condition: It Will Not Be Solved Without It,13 NOV

 An Economist "Limits" The Solution To The Exchange Rate Problem To One Condition: It Will Not Be Solved Without It

Baghdad today – Baghdad   Economist Nabil Al-Marsoumi confirmed in a blog post on Facebook, followed by “Baghdad Today”, today, Sunday (November 12, 2023), that the exchange rate crisis in Iraq cannot be solved without solving the problem of financing trade with Iran.

While exchange rates continue to rise by about (30 points) at least from the official rate decided by the Central Bank, which decided to raise the value of the official exchange rate of the dinar against the dollar by 10 percent in a measure aimed at reducing the decline in the value of the currency that accompanied the adoption of more regulations. Strictness regarding financial transfers outside the country.

The government then agreed to the Central Bank’s proposal to raise the value of the exchange rate from about 1,470 dinars to 1,300 dinars per dollar, which had a clear impact on the exchange market at that time by reducing prices that reached the level of 1,700 dinars in the parallel market.

Earlier, an Iranian official revealed that Baghdad was moving to propose dealing with Tehran in exchanges in the Iraqi dinar instead of the dollar or other foreign currencies.

The commercial advisor to the Iranian embassy in Iraq, Abdul Amir Rabihawi, said at the meeting of the Joint Iranian-Iraqi Chamber, which was held early last July, that this proposal would be in Iran’s interest, especially in view of “the sanctions on Tehran,” noting that this means implementing all exchanges between men. Business in dinars instead of dollars.

Economists believe that “making an exchange with the Iraqi dinar instead of the dollar supports the Iraqi national currency, and that this matter may also have a political message from Tehran to the United States, that dealing in the dollar can be easily abandoned, and it may involve risks that the Iraqi dinar will be exchanged by Iranians at weak prices lead to a collapse in the exchange rate of the Iraqi national currency against other currencies.

Also, “the idea of using local currencies in trade exchange between Iraq and Iran was an idea put forward by the Federal Reserve in its meetings with officials, and it is applicable despite its difficulty, and it is closely related to Iraqi payments related to the import of electricity and gas, as it was proposed that they be placed” in an account in the bank. The Central Bank of Iraq, to be used to finance purchases and imports related to the humanitarian aspect that Iran is allowed to import, but the trade balance between Iraq and Iran tends in favor of Tehran at about 10 billion dollars annually.

Despite the measures taken by the government to prevent currency speculation, experts and specialists confirmed that “the solutions did not address the structural defect in the economy, as the commercial sector was not reorganized, and the banking system did not fully comply with international standards and the Federal Reserve Bank (the US central bank) in transfer operations.” which is conducted daily.

Also, "the levels of transfers that take place daily are still high and not commensurate with the size of the Iraqi economy, which exceed 200 to 300 million dollars on some days."

On the other hand, “some merchants are complaining about the delay in executing their financial transfers, which has resulted in financial burdens, which the Central Bank’s procedures have not addressed. Therefore, many of them have returned to buying dollars from parallel markets, even if they are at prices more expensive than the banks.”

Iraqi banks must now manage these transfers through the “SWIFT” electronic platform, which is synonymous with more stringent monitoring of transactions, especially by the US Federal Reserve, which rejects any transfer deemed suspicious.

Iraqi banks must currently register “their dollar transfers on an electronic platform, which checks the requests... and the Federal Reserve examines them, and if it has doubts, it stops the transfer.”

With the beginning of the implementation of the electronic system, the Federal Reserve rejected 80 percent of requests for financial transfers to Iraqi banks against the backdrop of doubts related to the final destination of those amounts being transferred.

Source: Baghdad Al-Youm + Agencies   LINK