STATUS OF THE RV . PART 5
What can the CBI do to gain liquidity in the banks?
☹Before discussing this question, you should first go read the article titled “EMPLOYEES WITHDRAW 8 TRILLION DINARS FROM BANKS IN TWO HOURS.. THE MINISTRY OF FINANCE SEEKS A SOLUTION.”
I quote from the article “Employee and retiree salaries, which amount to approximately 8 trillion dinars, are now paid electronically, but they are withdrawn within two hours, immediately emptying all banks. This must be addressed.”
Apparently, the CBI has NOT yet overcome the liquidity issue of stashes of cash outside the banking system.
There are two issues here to discuss with the Iraqi banking system:
First the article is telling us there is a crisis of confidence despite the electronic system that was put in place. Let me explain. The CBI put in place automatic electronic deposit for employees and retiree’s salaries. This done was to encourage this money to stay within the banks, while the employees use the ATMs just for small petty cash withdrawals. Thus also the strategy of all the ATMs throughout Iraq.
This strategy was hoped would provide the bulk of the money to stay within the banks for loans and to thus allow the banks create banking products to turnover the methods of profit revenues for banks away from almost solely the currency auction spreads of the past. But what just happened with this last payroll cycle?
Secondly, remember the currency auctions are gone, so how will the banks make their money if not through other creative banking products? This is the second issue.
As the article title states, almost the entire payroll was withdrawn from the banks in 2 hours. WOW! WOW! WOW! So, do you think the CBI plans for liquidity in the banks is working? Just asking because many of you are still in denial of what is really happening in Iraq and the obstacles they face to be overcome. Why would they reinstate the dinar at a time like this?
I don’t want to sound negative, however when this happens this does not look good for the Iraqi banking system. Seems to me they still have a problem with these large stashes of cash outside the system. Do you see now why they may very well decide even to go “ALL” digital dinar in the near future.
This of course would require much more infrastructure including wide use of advanced cell phones, digital wallets and other Point of Sale machines.
I will add that maybe, just maybe the real issue is the value of the dinar over the dollar? Will raising the value of the dinar over the dollar force this change to occur. Maybe more strict limits too of how much money can be withdrawn in a period might help. Also maybe more incentives like higher interest rate or promo products might also help to keep the money in the banks.
