DINAR REVALUATION REPORT: The Dual Exchange Rate System in Iraq and Its Connection to Corruption, 11 SEPT

 The Dual Exchange Rate System in Iraq and Its Connection to Corruption

Iraq's dual exchange rate system, characterized by an official rate set by the Central Bank of Iraq (CBI) and a parallel market rate, has been a significant factor in the country's ongoing economic challenges. 1 This system creates a fertile ground for corruption, as the disparity between the two rates can be exploited for personal gain, often by those with political connections or access to privileged information.

The dual exchange rate system operates in a way that allows individuals or entities with access to the official rate to buy US dollars at a cheaper price and then sell them at the higher market rate, pocketing the difference. 1 This arbitrage opportunity, exacerbated by the volatility and depreciation of the Iraqi Dinar (IQD), has become a breeding ground for illicit activities, including money laundering, smuggling, and embezzlement.

Corruption in the Dual Rate System

Access to the Official Rate

Individuals and companies with connections to the government or the CBI often gain preferential access to the official exchange rate. This access can be used to acquire US dollars at the lower official rate and then sell them on the parallel market at a higher rate, a practice known as "dollar flipping".  1 The significant markup between the two rates can result in substantial profits, often at the expense of the Iraqi economy and the public.

Smuggling and Illicit Transactions

The dual rate system has also facilitated the smuggling of dollars out of Iraq, particularly to neighboring countries like Iran, to avoid sanctions or for other illicit purposes. 6 This activity not only depletes Iraq's foreign currency reserves but also contributes to the volatility of the IQD and undermines the effectiveness of the government's anti-corruption efforts.

Embezzlement and Misuse of Public Funds

The depreciation of the IQD following the implementation of global procedural requirements for cross-border payments by the CBI in mid-November 2022 led to a significant supply-demand mismatch for US dollars, causing the market price of the IQD to depreciate. 1 This situation was further exacerbated by the embezzlement of 3.7 trillion Iraqi dinars (about $2.5 billion) from the General Commission of Taxes’ bank accounts, illustrating how corruption and mismanagement of public funds can be closely tied to the dual exchange rate system.

Anti-Corruption Efforts and the Dual Rate System

The Iraqi government and the CBI have introduced a series of measures aimed at creating domestic demand for the IQD and accelerating the adoption of banking in the Iraqi economy. 1 These measures are crucial steps toward de-dollarization and reducing the dominance of cash transactions that facilitate corruption. However, given the entrenched nature of corruption within Iraq's economic and political systems, the full effectiveness of these reforms is likely to take several years to materialize.

Conclusion

Iraq's dual exchange rate system has become a significant enabler of corruption, providing opportunities for those with access to the official rate to benefit at the expense of the broader economy and society. Addressing this issue requires not only economic reforms but also a robust anti-corruption strategy that targets the root causes of corruption within Iraq's political and economic structures.

Iraq's Dual Exchange Rate: A Corruption Hotbed

DINAR REVALUATION REPORT: Understanding Iraq's Exchange Rate and Current Account Balance in 2024, 11 SEPT

 Understanding Iraq's Exchange Rate and Current Account Balance in 2024

In the realm of economics, the external value of a currency is significantly influenced by the balance or surplus in the current account of the balance of payments relative to the gross domestic product (GDP). 1 As of September 11, 2024, Iraq's economic landscape is characterized by a dual exchange rate system and a current account balance that has been fluctuating due to various economic and geopolitical factors. 2

Iraq's Dual Exchange Rate System

Iraq operates with two exchange rates: the official rate and the market rate.

As of 2024, the official exchange rate stands at approximately 1,310 Iraqi dinars per US dollar, while the market rate is higher, around 1,460 dinars per dollar, marking a 12% gap between the two. 1 This dual rate system was established in response to the fiscal crisis of 2020 and the subsequent devaluation of the dinar by 23%. In February 2023, the dinar was revalued, increasing its value to 1,310 per dollar from 1,450, benefiting importers but negatively impacting exporters of non-oil goods.  1

Impact of Dual Exchange Rates

The existence of two exchange rates has several negative impacts on Iraq's economy. It disrupts existing contracts, discourages trade and investment, both domestically and internationally, and complicates fiscal policy. Moreover, it fosters corruption by allowing individuals to profit from the difference between the official and market rates. 1

Current Account Balance

The current account balance of Iraq has been subject to significant changes over recent years. In 2021 and 2022, high hydrocarbon prices generated a large current account surplus. However, in 2023, oil prices began to decline, leading to a projected move into deficit in 2024 due to the decrease in oil exports and the increase in import volumes to meet the rise in private consumption and the need for capital goods.  3

Factors Influencing Current Account

The current account deficit in 2024 is influenced by the OPEC decision to maintain production cuts, Iraq being the second-largest producer, along with oil prices moderated by a sluggish global economy and the revaluation of the dinar in February 2023. 3

Economic Outlook

Iraq's economic activity in 2024 is projected to remain moderate. The growth rate is expected to be driven by investment projects, particularly those related to infrastructure and reconstruction, as well as by significant current public spending, such as raising the minimum wage, which will support private consumption. Inflation is anticipated to return to a moderate level due to easing global food prices and the revaluation of the dinar, which should limit imported inflation. 3

Conclusion

Iraq's economic situation in 2024 is a reflection of its dual exchange rate system and the challenges it faces in maintaining a stable current account balance. The country's reliance on oil exports and its efforts to diversify its economy will continue to be key factors in shaping its economic future.

Citizen and exchange rate, 11 SEPT

Bashir Khazal

 In economics, the external value of a currency lies in the presence of a balance or surplus in the current account of the balance of payments relative to the gross domestic product, which should indicate a stable state at a minimum, not less than 4 percent annually.

 To achieve this goal, it is necessary to rely on a sustainable increase in the annual growth rate of the gross domestic product, provided that exports exceed imports, within the country’s trade balance.

In the past, the country had the capacity to export goods and services more than it imported, which strengthened the value of the national currency, especially the external value of the currency itself, during those years, especially in the early seventies, and the economy indicated a positive state, in addition to the availability of foreign reserves that support the main buffer against potential external factors and their effects on the overall economic situation.

 In the current economic system, currency prices are determined globally in two main ways, namely floating and fixed prices and through local and international factors that control the strength of the currency in supply and demand, interest rates, inflation and growth in the local economy, the trade balance and other influences, but the strength of the national currency is linked to its external value, specifically the exchange rate, as the external value of money is directly linked to the stability of the current account of the balance of payments, especially in the long term, in addition to the stability of foreign reserves in the central bank of the country, which strengthens the strength of the Iraqi dinar and the stability of the exchange rate.

On the other hand, the value and stability of the currency are linked to the internal value of the national currency itself. Just as we talk about the stability of the external value of the currency in the exchange rate and its exchange power with other currencies, the internal value of the currency is the other side of the stability Currency and its strength, here the value of the national currency is directly linked to the general price level, which means the strength of goods and services expressed in money. There is a correlation between price stability and the value of the national currency, and this requires the availability of a wise monetary policy, undertaken by central banks that make the growth in the money supply commensurate with the growth in the gross domestic product or national income.

The quantitative theory of money is based on the principle of the neutrality of money, which explains that the cause of inflation in the long term is money itself, as the growth in the money supply in a way that is not commensurate with the growth in the gross domestic product leads to either inflation or contraction in the growth of the general price level

If the amount of money in the economy increases, and unless there is a parallel increase in economic output, this will lead to an increase in the general price level, and a loss of control over exchange rates, even if the state sets the exchange rate in a way that is different from what is sold in the market.

The best evidence of this is that the exchange rate in most Iraqi markets is still fluctuating between 149-150 thousand Iraqi dinars for every 100 US dollars, while the government exchange rate is 132 thousand Iraqi dinars for every 100 dollars. American, but it did not bring any significant benefit to the citizen, but rather only speculators, brokers, traders and some companies profited from the price difference.  LINK

BRUCE HIGHLIGHTS, 11 SEPT

 Tues. 10 Sept. 2024 Bruce

• All new rates came up on the screens Sunday night 8 Sept. 2024. Monday we had all new rates on all currencies at the banks – but today we didn’t see them on RC screens. This is because bank screen rates are not as high as at the Redemption Centers. The Dinar was 3 x time higher at the Redemption Center and the Dong was 2 x higher and I think it’s just because they didn’t want the high rates visible.

• The Iraqi Dinar is to be traded on the ISX also on the Forex possibly with a new rate and the SBI site itself. The Dinar Contract rate is extremely high and is the same as the rate of selling a barrel of oil. They will offer Tier4b the Contract Rate at Redemption Centers.

• One person known in the community is saying it’s highly possibly the RV will happen tomorrow or Thursday.

• A Redemption Center Leader was to have received an email from a certain person who was over ALL the Redemption Centers East of the Big River and this leader had to get those emails out. All the Redemption Centers will have that green light from Treasury at the same time.

• Those of us in Tier4b (the Internet Group) should be notified either tonight overnight tonight or tomorrow, with exchanges that could start tomorrow and/or Thursday. We won’t know till we get the emails.

• Only Zim Holders will be getting the new StarLink Satellite phone at their appointments.

• The servers for Social Security payments have been down for the last five days. We believe it’s to connect to Starlink  – which may or may not include that increase in SS. They should come back up tonight for payments tomorrow on 9**1

• So we have the possibility and this might well ALL get started on 9**1. All of you who are in the know and KNOW that would be very interesting timing. 

DINAR REVALUATION REPORT: Central Bank's Efforts to Strengthen the Iraqi Dinar Value in 2024, 11 SEPT

Central Bank's Efforts to Strengthen the Iraqi Dinar Value in 2024

In 2024, the Central Bank of Iraq (CBI) has embarked on a series of measures to bolster the value of the Iraqi dinar (IQD). 1 Recognizing the importance of a stable currency for economic growth and financial stability, the CBI's initiatives are part of a broader strategy to enhance the Iraqi economy and improve living standards.

Economic Rebound and Inflation Control

Following the fiscal expansion starting in 2023, the Iraqi economy has experienced a strong recovery in its non-oil sector. 1 This has been supported by domestic stability, improved conditions, and the implementation of Iraq’s first three-year budget. Inflation has also declined to 4 percent by the end of 2023, partly due to a currency revaluation in February 2023, as well as the normalization in trade finance. 1

Fiscal and External Challenges

However, the ongoing fiscal expansion has also led to imbalances, with concerns over the large fiscal expansion and lower oil prices. The CBI is aware that without policy adjustment, there is a high risk of medium-term sovereign debt stress and potential external stability risks.  1

Currency Issuance and Dollar Supply

The amount of dinars circulating outside banks has been increasing daily, reaching 93.1 trillion dinars by the end of December 2023. 2 This has raised questions about the value of dinars in the market, especially if oil prices remain unfavorable and do not support the dollar inflow that traditionally underpins the dinar issuance. 2

Controlling Dollar Usage

In an effort to eliminate the use of the US dollar in the local market, Iraq's measures have achieved relative success in controlling foreign currency. 3 The exchange rate of the dollar has been stabilized between 1,470 to 1,450 dinars per dollar, down from an unprecedented level of 1,700 dinars per dollar in 2023. 3

Coordination with the Finance Committee

The CBI has been in close coordination with the Finance Committee to enhance the value of the Iraqi dinar. 4 Discussions have focused on monetary policy, methods to increase the dinar's value, stabilizing the market, and addressing deficits. 4

Future Plans and International Standards

The CBI has also discussed future plans to improve banking institutions, expand relations with international banks, and restructure the banking sector.  4 Emphasis has been placed on transitioning towards electronic payments and the potential amendment of the Central Bank law to align with international standards. 4

Conclusion

The CBI's efforts to strengthen the Iraqi dinar in 2024 involve a multi-faceted approach, including fiscal policy adjustments, controlling the dollar supply, and aligning with international banking standards. These measures aim to create a stable and robust economy, enhancing the value of the dinar for the benefit of Iraq and its citizens.

LATEST FROM REINALDO JC, 11 SEPT

 REINALDO JC

Iraq is looking at this & saying holy sh*t, our economy depends on oil prices being !We will drown, not able to survive the economic collapse with those futures, amongst other things & will need to change the Dinar rate soon or sooner!!!

---

 Reynaldo JC

IRAQ 🇮🇶

🚨 IRAQ TELLS US TO THE FACE THAT THEY WILL PUSH THE TRIGGER TO INCREASE THE VALUE OF THE IRAQI DINAR! 

✅ GREEN LIGHT AND BLESSINGS FROM THE US FEDERAL RESERVE AND TREASURY!

The outcome of last week's meeting between the CBI and the US Treasury and Federal Reserve.

👇🏾

The Prime Minister's Advisor on Financial Affairs, Mazhar Mohammed Salih, confirmed on Wednesday that the renewed understanding with the US Federal Reserve WILL ALLOW the monetary authority to RE-ESTABLISH a domestic banking market, while indicating that the results of the discussions between The Central Bank and the Federal Reserve are GOOD and CONSISTENT with the working rules, noting that they WILL ALLOW the IMPLEMENTATION of a PRECISE path between IRAQI and INTERNATIONAL banks.

“Specifically large INTERNATIONAL banks interested in INTERNATIONAL banking operations that cross markets), and that an advanced model of understandings has been ACHIEVED at this stage.”

Salih highlighted that “this WILL ALLOW the IMPLEMENTATION of a CLEAR and ACCURATE path to facilitate payment and settlement operations between IRAQI banks and INTERNATIONAL correspondent banks, as well as the final beneficiary in the trade financing cycle in the areas of INTERNATIONAL trade and CURRENCIES that Iraq deals with by paying in different reserve currencies.”

TRANSLATION IN SPANISH

Reynaldo JC : Dice 

IRAQ 🇮🇶

🚨 ¡IRAQ NOS DICE EN LA CARA QUE APRETARÁN EL GATILLO PARA AUMENTAR EL VALOR DEL DINAR IRAQUÍ! 

✅ ¡LUZ VERDE Y BENDICIONES DE LA RESERVA FEDERAL Y EL TESORO DE EE. UU.!

El resultado de la reunión de la semana pasada entre el CBI y el Tesoro de EE. UU. y la Reserva Federal.

👇🏾

El asesor del Primer Ministro en Asuntos Financieros, Mazhar Mohammed Salih, confirmó el miércoles que el renovado entendimiento con la Reserva Federal de los Estados Unidos PERMITIRÁ a la autoridad monetaria RESTABLECER un mercado bancario interno, al tiempo que indicó que los resultados de las discusiones entre el Banco Central y la Reserva Federal son BUENOS y CONSISTENTES con las reglas de trabajo, señalando que PERMITIRÁN la IMPLEMENTACIÓN de una vía PRECISA entre IRAQUÍ y los bancos INTERNACIONALES.

“Específicamente los grandes bancos INTERNACIONALES interesados ​​en operaciones bancarias INTERNACIONALES que cruzan los mercados), y que se ha LOGRADO un modelo avanzado de entendimientos en esta etapa”.

Salih destacó que “esto PERMITIRÁ la IMPLEMENTACIÓN de una vía CLARA y PRECISA para acelerar las operaciones de pago y liquidación entre los bancos IRAQUÍES y los bancos corresponsales INTERNACIONALES, así como el beneficiario final en el ciclo de financiamiento comercial en las áreas de comercio INTERNACIONAL y DIVISAS con las que Irak trata pagando en diferentes monedas de reserva”.

https://dinarevaluation.blogspot.com/2024/09/iraq-wil-push-trigger-to-increase-value.html