DINAR REVALUATION

Friday, August 23, 2024

ECONOMIST'S BOLD PLAN TO FIX IRAQ'S DOLLAR EXCHANGE RATE

DINAR REVALUATION UPDATE: ECONOMISTS ARE PROPOSING DISMANTLING THE PARALLEL MARKET IN IRAQ, 23 AUGUST

Economist's Solution to Lower the Dollar Exchange Rate in Iraq

On August 22, 2024, Mustafa Akram Hantoush, a renowned expert in economic and financial affairs, offered insights into what he believes is the solution to lowering the dollar exchange rate in Iraq's markets. 1

The Parallel Market Dilemma

Hantoush emphasized that dismantling the parallel market is crucial for the reduction of the dollar exchange rate. He pointed out that small traders lacking facilitating mechanisms, unprocessed trades such as gold and cleaning materials, and substantial trade with Iran and Syria pose significant challenges. 1

Processing Unregulated Trades

The economist suggested that processing these unregulated trades by providing traders with currency or gold could help stabilize the market. He noted that several countries have successfully navigated trade with Iran, despite American sanctions, and have also resolved travel issues to those countries. 1

Fluctuating Exchange Rates

Despite the Central Bank of Iraq's selling rate of 1,320 dinars for every one dollar, the dollar exchange rate in the parallel markets surged to approximately 150,000 dinars for every 100 dollars. Although the government's efforts led to a temporary decline in rates, the exchange rate subsequently rose again, indicating a persistent economic issue. 1

Parliamentary Response

In light of these developments, parliamentarians initiated a movement to question the governor of the Central Bank. The Finance Committee in the House of Representatives submitted a request to the parliamentary leadership to hold the governor accountable for a significant flaw in the bank's management. 1

Request for Questioning

A document signed by Finance Committee members demanded the governor's questioning in the nearest session, citing constitutional and internal regulations. 1

Conclusion

Hantoush's proposal to dismantle the parallel market and regulate unprocessed trades highlights the need for comprehensive reforms to stabilize Iraq's currency. The ongoing fluctuations in the dollar exchange rate underscore the urgency of addressing underlying economic challenges.

LATEST FROM JON DOWLING, 23 AUGUST

JON DOWLING

Iraq has been talking about oil and the news as well for the past two weeks.

The more they talk about it, the closer the oil and gas law looks to be happening.

Could it be by September? Sure looks that way.

Meanwhile, the Fed admits rate cuts start urgently on September. Everything is coming in for our landing in the near future.

@JonDowling

IRAQ'S ECONOMIC STRUGGLES: DOLLAR DEPENDENCY & INFLATION

DINAR REVALUATION UPDATE: Iraq's Economic Challenges: Dollar Purchases, Inflation, and Currency Dependency, 23 AUGUST

Iraq's Economic Challenges: Dollar Purchases, Inflation, and Currency Dependency

Iraq's increasing demand for U.S. dollars reveals deeper economic issues that have implications for the country's fiscal health and financial stability [1]. This trend is mainly driven by two factors: the weakening of the Iraqi dinar and the growing dependency on foreign currency transfers. Both issues are interconnected and contribute to the inflation risks Iraq is currently facing.

Weakening of the Iraqi Dinar and Inflation Risks

The Central Bank of Iraq's (CBI) efforts to mitigate currency devaluation and reduce foreign currency dependence have not been as effective as anticipated [1]. By issuing more Iraqi dinars, the CBI intended to strengthen the national currency and limit the use of U.S. dollars. However, this approach has had the opposite effect, leading to a depreciation of the dinar and exacerbating inflation risks [2].

Rising Foreign Currency Transfers and Dependency on Imports

The increase in foreign currency transfers, particularly U.S. dollars, is closely linked to Iraq's heavy reliance on imports. The country's economy is heavily oil-dependent, with oil revenues accounting for a significant portion of its exports and government budget [3]. As a result, Iraq's fiscal stability is vulnerable to fluctuations in oil prices. When oil prices drop, the government faces budget shortfalls, prompting it to seek foreign currency to finance its needs. This, in turn, increases Iraq's dependency on imports and further strains its fiscal reserves.

Shortcomings of Current Economic Policies

Despite the government's efforts to implement a three-year budget, aimed at promoting fiscal discipline and economic diversification, the policies have fallen short of creating long-term stability [1]. The large fiscal expansion, initiated in 2023, while supporting a strong recovery in Iraq's non-oil economy, has also led to imbalances due to lower oil prices. The ongoing fiscal expansion is expected to boost growth in 2024, but it risks further deteriorating Iraq's fiscal and external accounts, making the country more vulnerable to oil price fluctuations.

The Need for Policy Adjustment

Given the risks posed by regional conflicts and the country's large dependence on volatile oil prices, there is a pressing need for sound macroeconomic policies and structural reforms [1]. These reforms should focus on securing fiscal and debt sustainability, advancing economic diversification, and achieving sustainable, inclusive, and private sector-led growth. Without such adjustments, Iraq faces a high risk of medium-term sovereign debt stress and potential external stability risks.

In conclusion, Iraq's struggle to gain control over its currency and reduce its reliance on the U.S. dollar underscores the complexity of the country's economic challenges. Addressing these issues will require a multifaceted approach that includes fiscal discipline, economic diversification, and structural reforms to ensure long-term stability.

Iraq Now Moving Backwards in Battle to Strengthen the IQD BY AWAKE IN 3D, 23 AUGUST

Iraq Now Moving Backwards in Battle to Strengthen the IQD

Awake-In-3D
August 22, 2024

Iraq’s struggle to stabilize the dinar worsens as growing reliance on dollars, rising imports, and inflation risks signal a shift in the wrong direction.

Iraq is facing serious financial challenges as it tries to reduce its dependence on the U.S. dollar and strengthen its own currency, the Iraqi Dinar (IQD). Despite efforts from the government and the Central Bank, Iraq is relying more on the dollar than ever before.

This makes it harder for the country to build a stable economy. Instead of improving the value of its own money, Iraq’s economy is moving in the wrong direction. By printing more dinars and buying record amounts of dollars, the country risks weakening its currency and becoming more dependent on foreign markets.

What you will learn reading this article:

Why Iraq’s increasing purchases of U.S. dollars signal deeper economic issues
How issuing more Iraqi dinars is weakening the currency and fueling inflation risks
The impact of rising foreign currency transfers on Iraq’s dependency on imports
Why current economic policies are falling short of creating long-term stability for Iraq’s economy

Iraq is struggling to gain control over its currency as its reliance on the U.S. dollar grows. Despite efforts by the Central Bank of Iraq (CBI) to strengthen the IQD and reduce dependence on foreign currency, the country’s economic strategy appears to be faltering.

Recent financial activities suggest that Iraq is moving backward in its quest for economic independence, raising concerns about the future of the nation’s financial stability.

Record-Breaking Dollar Purchases Signal Alarming Economic Trends

One of the clearest signs of Iraq’s deepening economic troubles is the Central Bank’s substantial purchases of U.S. dollars. In July 2024, the Central Bank of Iraq bought an unprecedented $9.6 billion worth of dollars from the Ministry of Finance, marking a record high since such transactions began in 2003. The trend is not confined to a single month either; in 2024, monthly purchases of U.S. dollars have averaged $5.9 billion.

This pattern of heavy reliance on the dollar is driven largely by the government’s growing expenditure, which requires more Iraqi dinars to fund its operations. As the government spends more, it turns to the dollar to keep the economy running. However, these purchases erode the strength of the IQD, pushing Iraq further from its goal of economic sovereignty.

Issuance of More Iraqi Dinars Weakens Its Value

To meet the Ministry of Finance’s financial needs, the Central Bank has issued more Iraqi dinars, but this strategy is creating new problems. Printing more dinars risks oversupply, which weakens the currency and threatens to fuel inflation. Historically, Iraq has struggled with inflationary pressures, and the current influx of newly minted dinars could reignite those issues.

Rather than stabilizing the currency, this approach is diluting the dinar’s value, putting Iraq in an even more precarious position. Instead of fostering a strong IQD, the country is becoming increasingly dependent on foreign currency reserves, predominantly U.S. dollars, to maintain its financial balance.

Rise in Foreign Currency Transfers Highlights Dependency on Imports

Another backwards trend is the rise in foreign transfers of U.S. dollars, which surged by 99% in recent months, reaching over $264 million in a single auction. The Central Bank uses these transfers to pay for imports and settle international accounts. The spike in foreign transfers is evidence of Iraq’s reliance on international markets to meet domestic needs.

This dependence on foreign goods and services weakens the IQD and diminishes the prospects of building a robust domestic economy. Each dollar sent abroad is a reminder of Iraq’s continued dependence on foreign markets, making it increasingly difficult to achieve economic independence.

Economic Policies Fall Short of Long-Term Stability

While the Central Bank has made efforts to ease the process for private banks to transfer money overseas, these policy changes are far from a solution. Such measures may keep imports flowing and help Iraqi banks pay international suppliers, but they fail to address the core issues plaguing Iraq’s economy.

The real problem lies in the country’s dependence on the U.S. dollar and its lack of a comprehensive strategy for strengthening the IQD. Unless Iraq shifts its focus to long-term growth and economic independence, these short-term policy changes will only provide temporary relief without resolving the underlying challenges.

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