THE “STUBBORNNESS” OF THE DOLLAR AGAINST THE IRAQI DINAR CONFIRMS THE “GAP” BETWEEN THE OFFICIAL AND PARALLEL PRICES

THE “STUBBORNNESS” OF THE DOLLAR AGAINST THE IRAQI DINAR CONFIRMS THE “GAP” BETWEEN THE OFFICIAL AND PARALLEL PRICES

Iraq has been seeking for two years to end the phenomenon of dealing in the dollar in the local market, while economic experts point out the success of the Central Bank of Iraq’s measures in achieving “relative” success in controlling the hard currency.

(Mnt Goat – Did you read it? It says “Central Bank of Iraq’s measures in achieving “relative” success in controlling the hard currency.” So please do not ask me if the parallel market is under control. It is but it is not yet where it needs to be. It needs to match the Offical CBI rate.)

The year 2023 witnessed an unprecedented rise in the dollar exchange rate, as it reached 1,700 dinars per dollar and continued for several weeks before it gradually decreased at the end of the year, reaching during the past two months a level ranging between 1,470 dinars to 1,450 dinars per dollar.

The Iraqi currency crisis began after the US Treasury deprived 14 Iraqi banks of the global bank transfer mechanism known as “SWIFT” in an attempt to prevent the smuggling of dollars to Iran.

The Central Bank of Iraq platform finances external transfer requests from foreign currencies that are specifically used for the purposes of financing foreign trade for the private sector.

The budget increases the gap

Economic expert Nabil Al-Marsoumi said, during an interview with Shafaq News Agency, that “the reason for the rise in the dollar is trade with Iran, which is subject to US sanctions, and therefore the electronic platform of the Central Bank of Iraq designated for selling the dollar does not provide traders with this currency, which forces them to resort to the black market to buy the dollar.”

He points out that “travelers to Syria, Lebanon, and Iran are also unable to obtain the official dollar from banks, so they resort to the parallel market, which increases the demand for the dollar.”

Al-Marsoumi adds, “The gap has recently begun to widen, especially after the launch of the new budget, which means an increase in overall demand, consumer and investment spending, and thus an increase in imports, which in turn will lead to increased pressure on the dollar, pushing it higher, and it may reach 150 thousand dinars for every 100 dollars and a little higher.”

The Iraqi government then agreed to the Central Bank’s proposal to reduce 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 per dollar in the parallel market.

STRUCTURAL IMBALANCE IN THE ECONOMY

Economic expert and professor of economics at the Iraqi University, Abdul Rahman Al-Mashhadani, attributes the stability of the dollar price for the second month to “the result of the performance and mechanisms used by the government and the central bank. As for the rise that occurred during the past days of Eid, it was caused by the great demand for travel outside Iraq, so the demand for the dollar increased”.

Al-Mashhadani explained to Shafaq News Agency, “Finding a solution is part of dealing with Iran, whose daily import rate ranges between 25 to 30 million dollars, part of which is through the United Arab Emirates.”

He pointed out that “the solutions did not address the structural imbalance 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 the transfer operations that take place daily.”

DOLLAR SMUGGLING

In turn, the economist and former director of the Central Bank of Iraq, Mahmoud Dagher, said during an interview with Shafaq News Agency, that “the gap between the market and the official price remains primarily due to the leakage of dollars into the market and then across uncontrolled borders.”

He adds, “Smuggling the dollar to countries subject to sanctions is the main cause of the dollar crisis, and to solve this crisis, the borders and customs must be controlled so that the dollar returns to the official price.”

(Mnt Goat – now can you see why such news articles on controlling the border and customs and tariffs. Its more than just increasing revenues. They MUST control their borders. )

He continues, “The reason why the dollar has not risen to more than 1,500 dinars during the past two months is that the bank sells more than 300 million dollars daily, and this offer is wide and somewhat restricts the increases, but the price in the market is still above 1,450 dinars per dollar, and the official price is 1,320 dinars.” This means that 120 points, or 130 dinars per dollar.

The fluctuation of the dollar exchange rate on the black market led to disruption of commercial activity in the country, which contributed to the rise in the prices of consumer goods. Despite the increase in the average Iraqi per capita income to seven million dinars last year, the price rise of goods and commodities, as well as the fluctuation of exchange rates, affect the Iraqi market. .

MARKET CONTRACTION

In an interview with Shafaq News Agency, economic expert Durgham Muhammad Ali said, “The dollar remaining within the region of instability has harmful effects on the local market, as the gap between the official price and the parallel price increases, the market shrinks and the supply of goods decreases, which raises their price even more than the parallel exchange value.” Therefore, stabilizing the price within one level and stifling the parallel market is the solution to any price crisis.”

He stresses that “the effects of long-term inflation are difficult and slow to address, even within a stable price range.”