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"Determine the exchange rate .. initiatives banks is a good thing, but monetary policy is the foundation"

5/21/2014

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Determine the exchange rate .. initiatives banks is a good thing, but monetary policy is the foundation


Sinan_Shabibi.jpg

Wednesday 21 May 2014
Group: Research and Studies

D. Sinan Shabibi, Mohammad Reza *

The central bank faced some problems at the beginning of 2012
represented an increase of demand for the dollar as a result of exit
of U.S. forces and increasing regional demand, especially by Syria and
Iran. Has such a great sense of economic shock led to increased demand

for the dollar and thus the high volume of foreign currency auction.
The phenomenon of external shocks is not strange in developing
countries, but is an essential feature of their properties because of

the openness of their economies to the outside. The face of these
shocks take a long time, during which fluctuates and is affected by
the exchange rate and other economic variables.
The focus of these shocks on the demand for the dollar, and is no
stranger to resort to countries that have witnessed some restrictions
aimed at regulating demand. And successes vary as a result of these
actions. This means that the fluctuation in the exchange rate in 2012
was mainly due to external shocks, and not because of internal policy.

It was not restrictive methods effective, but effective treatment,
which resulted in great success was through the lifting of all
restrictions and the liberalization of the exchange rate and to meet
demand for foreign currency as fully described in the statement No. 19
in 1/10/2012 where "the Bank has committed to maintaining the value of

Iraqi dinar and stability as part of a policy aimed at the protection
and growth of the Iraqi economy, and in this context ensures that the
Iraqi Central Bank to meet the demand for foreign currency is fully
not intersect with the law of money laundering and money, crime and
terrorism No. 93 of 2004, instructions and regulations issued in this
regard. "
If the crisis the central bank in the previous period is a result of
external shock violent, the volatility that took place at the time of
the current administration was the result of its policies, and the
treatment that we have seen recently was not the result of the policy
of this administration cash, but as a result of the initiatives of the
banks that was to reduce the exchange rate offered by dealers end by
reducing their profits. I have been restricting the supply of foreign

currency, starting (in the tenth month of 2012). This continued
restraint so as not to desire the new administration to meet demand

fully believing that it avoids the wastage of public money, was not
this administration is aware that the main objective of the central
bank, according to its law is the stability of the exchange rate, and
so it is very necessary to be an interview every demand except So
which involves banking irregularities and significant administrative
or one that involves the operations of money laundering and terrorist
financing.
So the price has continued to rise up and become the 1280 dinars to
the dollar at the end of the fifth month of 2013. Do not know how to
be in front of a waste of public money and we we meet a demand for the
dollar and keep the currency Iraqi suit and the resulting stability in
the exchange rate. The current administration is now selling amounts

beyond what was sold by the previous administration in recent duration

why there was waste in the past - as has been said - and there is no
waste now!?
We have adopted a new management treatment is not consistent with the
principles of monetary policy. This treatment represents that the
banks cut the price of the dollar, which means that the procedure was
the same on the exchange rate and not on the fundamentals of the
exchange rate (supply and demand of foreign currency). The target
price has directly ignores the fundamentals of price and therefore, it
is merely an administrative procedure and by. But relying on the
basics of price means the use of the reserve to meet demand, which
will lead to reducing the price of the dollar, and this market issue
and not an administrative issue, and if the reserve was reduced as a
delimiter key to the basics of price, baptize to increase the price of
the dollar. So it was on the monetary authority to reduce the exchange

rate of the dollar by pumping the money supply through the reserve and
not by the banking sector downwardly directly. In other words, the
treatment must be within the monetary policy mainly.


The treatment through the reserve will be more stable and enduring.
Change the price or reduction in this case must be due to the effect
of monetary policy, especially the money supply and exchange rate
policy.

Should not be reduced because of this reduction in banks' profits it
is not characterized by stability and permanence of the hand, as it is
not within the means of monetary policy on the other hand. This has
resulted in a method (by banks)to lower the exchange rate of 1280

dinars to 1225 dinars, a price is still high.
On the other hand, the treatment of cash through banks will impose
some restrictions on the central bank, and would increase the
bargaining power of banks, especially when they asked the central bank
to apply some procedures, such as development banks to increase

capital or to ask them to activate brokerage to regulate the banking
reality.


Finally,

the exchange rate policy is the policy of the total area while you are
working with banks is a partial sphere.Determine the exchange rate and

the basic function of the functions of the central bank, which is
certainly not the tasks of the banks, especially since the central
bank has a large reserve in which you can meet all the demand levels.

It is possible to get to the same result, any reduction in the price
of the dollar, through the reserve and thus be in front of monetary
policy to maintain the stability of the exchange rate, led by the
central bank.


The trading with the banks on the issue of the exchange rate is

needed, but that this trade must go out to the government and the
parliamentary and the private sector as well, and can cover the
trading of other elements of monetary policy.

==========
* Governor of the Central Bank of the former Iraqi
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