"YES... A MANAGED FLOAT OF THE IRAQI DINAR CURRENCY WILL SOLVE MANY CRISES" by FRANK26, 10 AUGUST

 KTFA

FRANK26: "YES... A MANAGED FLOAT OF THE IRAQI DINAR CURRENCY WILL SOLVE MANY CRISES".....F26

Is “floating the currency” a solution to the crisis of the high dollar in Iraq? A representative explains

 

8/8/2024

 

There are calls to float the exchange rate in Iraq. Is this related to the issue of controlling the exchange rate and preventing its rise?

In this regard, the member of the Parliamentary Finance Committee, Khalil Al-Doski, denied the truth of the fact that “floating the currency will reduce the dollar,” stressing that floating the currency has nothing to do with reducing the dollar, but rather has to do with the issue of supply and demand for the currency, as it could lead to instability in the value of the Iraqi currency.

Al-Doski told Iraq Observer , “The benefit of floating is to highlight the true value of the Iraqi dinar only, meaning that the dollar will range in price between 200 and 300 Iraqi dinars, and in any case, with the circumstances that Iraq is currently going through, it is possible that the value of the Iraqi currency will decrease.”

He added, "If Iraq adopts the floating method in its economic dealings, it will not sell the dollar at the official price, and the Central Bank will sell hard currency to the party that pays more. Therefore, floating will ultimately lead to instability in the value of the currency."

He pointed out that “floating is not at all suitable for the economic conditions in Iraq. Despite the relative rise in the exchange rate, inflation can be controlled,” noting that “the solution to controlling the exchange rate lies in obligating all banks, companies and institutions that deal in dollars to adhere to the standards so that the state and the Central Bank can include the largest possible number of banks in the currency selling window, and thus the road will be closed to the doors of speculation and smuggling of the currency outside the country.”

Floating the currency is a procedure based on liberalizing the exchange rate, leaving it to market factors (supply and demand), to determine its value without any form of intervention by the economic authority. This means that there is a private sector in the economy, which has productive activities that are marketed abroad (exports) through which dollars are obtained that enter the domestic economic activity. In return, there are also private sector activities that depend on the outside (imports), from consumer goods and services or production requirements and semi-manufactured goods and others, so these economic units take the dollar out of the economic activity.

This mechanism makes the exchange rate appear as if it is floating like a ship on turbulent waves that take it right and left, away from the equilibrium point, until stability returns to the original equilibrium point.

There are two types of floating: the first is absolute floating, and the second type is managed floating, i.e. the type in which the central bank intervenes to direct the exchange rate up or down, as it sees fit to achieve the interests of the national economy.

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