Foreign reserves and the price of the dollar. What do you know about her jobs in Iraq?
Experts in the Iraqi economic affairs saw that the Mesopotamian reserves and its investment portfolio, after the reserves recorded 106.7 billion dollars during the year 2024, fortified Iraq and its incubator in providing overall stability and protecting the national economy from external shocks that are reflected on the Iraqi balance of payments, as well as its role in stabilizing the general level of prices internally through policies of intervention in the organized monetary market.
Iraq ranked third in the Arab world in terms of foreign exchange reserves for 2024, as this reserve is considered “very large” and “reassuring” because it represents 20-40% of the volume of the exporting currency, and the foreign reserves of any country contribute to maintaining the value of the local currency and liquidity to meet international financial obligations, as well as financing internal projects and reassuring investors, in addition to diversifying investment portfolios.
Cash reserves are defined as the total deposits and bonds of foreign currencies held by central banks and monetary authorities in the state with the aim of supporting the local currency and paying the outstanding debts of the state. Monetary reserve usually consists of several elements, namely foreign currencies, such as the dollar, the euro, the Japanese yen and other currencies, as well as gold.
Semi-fund for sovereign wealth
In this context, the financial adviser to the Iraqi Prime Minister, Mazhar Muhammad Saleh, says that Iraq’s foreign reserves, their composition and management are a semi-sovereign wealth fund (which is currently managed by a diversified investment portfolio in different currencies and short-term derivative investment instruments), and the aforementioned portfolio of reserves performs two basic functions simultaneously.
Saleh reviewed these two functions by saying to the “Jabal” platform: “The first is to protect macroeconomic stability, that is, stabilizing the general level of prices internally by adjusting the levels of domestic liquidity in accordance with the real flows of goods, services and benefits that finance part of those reserves and their consequences are called here as international reserves, by affecting the control of growth in the money supply by intervening in the money market by withdrawing excess liquidity by exchanging it for foreign currency, in order to finance foreign trade for the private sector specifically, indicating that these activities are called in monetary policy (cash sterilization) using a mechanism called open market operations, which is the operational (quantitative) aspect of monetary policy objectives Called operational objectives to combat the growth of monetary inflation rates and the stability of cash flows.
The second is the use of these foreign reserves in part by intervening in the monetary market to provide (price) stability in the exchange market by adhering to (signals) the fixed and stable exchange rate, which is the regular exchange market in foreign currency the basis of that market and the leader of the stability of the exchange rate itself, according to the valid.
In his talk to “Al-Jabal”, the adviser stressed that there is a specialized central management of these reserves, as the foreign portfolio is subject to high-precision investment criteria in the adoption of short-term international financial instruments that generate interest returns, including investment in treasury bonds for central countries in the world that are guaranteed high-rated return, but they are semi-liquid, and this is what distinguishes the sovereign wealth fund from stability funds. I mean the foreign reserve portfolio, which requires it to be almost liquid to cope with fluctuations in the national balance of payments when needed.
Cash gold, which may constitute a percentage of more than 10% of those reserves, is also a safe haven within the aforementioned investment portfolio for the reserves that are subject to research against the risks of currency fluctuations and the interest that make up the portfolio itself, because the gold asset cycle is one of relatively long-term and stable cycles, as monetary authorities can issue gold bonds guaranteed in the same reserve gold and at interest when needed, which are globally desirable bonds, according to the advisor to the Iraqi government.
Saleh added that “Iraq currently enjoys foreign reserves that are high in the efficiency scale, especially in the issue of its coverage of the cash supply in its broad sense, which covers 75% or more, which is the global measure required to measure the efficiency of foreign exchange reserves in preserving the stability of the national economy, as well as the fact that the said foreign reserve covers about 15 months of import trade, which is a measure superior to the global scale, which indicates 3 months of commercial efficiency,” and thus “Iraq’s reserves and investment portfolio are Iraq’s fortress and incubator in providing overall stability and protecting the national economy from external shocks that are reflected on the Iraqi balance of payments as well as their role in stabilizing the general level of prices Internally, through policies of intervention in the regulated monetary market.”
It gives Iraq the ability to control the exchange rate of the dinar
On the other hand, the professor of international economics, Nawar Al-Saadi, acknowledged that “these reserves go beyond just numbers registered with the Central Bank, as they represent the basis on which the state relies in the face of economic crises, whether they are caused by the decline in oil prices, which is the main source of revenue, or due to turmoil in global financial markets that may affect cash flows and investments.”
Al-Saadi added in his talk to “Al-Jabal” that “having strong foreign reserves gives Iraq the ability to control the dinar exchange rate, which reduces its violent fluctuations, which may lead to high inflation rates and an increase the cost of living for citizens. These reserves are used to finance vital import operations, especially basic goods such as food and medicine, which ensures the continued flow of these materials to Iraqi markets without much affected by external conditions.”
He added that “the level of foreign reserves directly affects Iraq’s credit rating and the confidence of international financial institutions in the local economy. The higher these reserves, the greater the confidence of investors, which enhances the opportunities to attract foreign capital and supports investments in non-oil sectors, which is what Iraq needs to reduce its dependence on oil as the only source of revenue.”
He considered that “the existence of large reserves alone is not enough to ensure economic stability, as they must be accompanied by sound financial and economic policies. These reserves cannot be considered a resource consumed just to cover the fiscal deficit, calling for “investing them wisely to promote economic development and support the productive sectors, because the use of the reserve ill-considered may lead to its depletion over time, exposing the country to great risks when unexpected economic shocks occur.”
Al-Saadi concluded his speech by saying that “Iraq needs a clear strategy in managing its foreign reserves, so that they are employed in a way that balances monetary and financial stability on the one hand, and supports development and investment projects on the other hand. Keeping these reserves at secure levels enhances the resilience of the Iraqi economy in the face of crises, and gives decision-makers more room to maneuver in the face of future economic challenges.
