Trinity's Take: Highlights from 2013 IMF Consultation

[TrinityeXchange]

hello all.  the IMF has released a report on the 2015 consultation.  i am hoping to see the release of a publication soon.  until then i want to highlight a few areas of interest from its previous report.  

 

Takeaways:

• the CBI through is restrictive regulations is hampering the foreign exchange market
• IMF (staff) encourages the authorities to create the conditions necessary to move to a flexible exchange regime
• IMF (staff) desire is to see the dinar experience gradual appreciation
• the CBI's current limitation on foreign exchange supply is adverse to an appreciation of the dinar
• the CBI plans to get on board with the IMF's desires in the medium term but they have to deal with money laundering in their own way right now
• IMF recommend a method of dealing with both, liberalizing the foreign exchange market AND preventing money laundering but CBI knows best

We look to see if things have changed in 2015's report however we all know that they haven't from watching the news.  Everybody, even the IMF, wants to see this money turned on but the CBI is so fricken' preoccupied.  You can always reference my opinions (read more and scroll to page 17)

 

B. Monetary, Exchange Rate, and Financial Policies

 

With a severely underdeveloped financial system, high bank liquidity, and administered interest rates, the usual channels of transmission of monetary policy are largely ineffective. Therefore, the principal instrument available to the CBI is foreign exchange intervention, but its effectiveness has been hampered by CBI regulations. Discussions focused on (a) distortions in the foreign exchange market, ( exchange rate policy, © foreign asset management, and (d) banking system restructuring.

 

14. The de facto fixed exchange rate has served Iraq well. The authorities agreed that a stable nominal exchange rate provides a valuable anchor for inflation expectations in an uncertain environment, and intend to continue implementing this policy for the foreseeable future. In the medium term, staff encouraged the authorities to consider creating the conditions which would make possible a move to a more flexible exchange rate policy. Such flexibility could allow a predictable and gradual appreciation of the nominal exchange rate, triggered by strong oil revenues and the Balassa-Samuelson effect, to accommodate a possible real exchange rate appreciation while keeping domestic inflation low.

 

15. However, the authorities have been limiting foreign exchange supply to address concerns related to money laundering and terrorism financing. The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice.3 The CBI continues to rely on controls to ration the supply of foreign exchange, which have contributed to the increase in the spread between the official auction and parallel market rate. The authorities aim to liberalize the foreign exchange market over the medium term. However, given the limited capacity of the financial sector to implement Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) preventive measures, they consider restricting the supply of foreign currency necessary to stem illegal outflows triggered by regional developments and increased import demand financed by illegal sources.

 

16. In contrast, staff recommended liberalizing the foreign exchange market and improving the AML/CFT regime. Staff noted that effectively limiting supply might be inconsistent with a de facto fixed exchange rate regime. The CBI has ample international reserves to maintain the de facto peg. Furthermore, AML/CFT standards do not contemplate ex-ante controls on foreign currency transactions, but focus on customer due diligence and reporting suspicious transactions to an operational and fully independent Financial Intelligence Unit. In staff’s view, accelerating the liberalization of payments for current transactions would therefore be the best approach to eliminating distortions in the foreign exchange market, the exchange rate spread, and the rents it creates. It would also allow removing the exchange restrictions and 3 See Section IX of Annex I of the Informational Annex for a list of the exchange restrictions and multiple currency practice subject to Fund jurisdiction. IRAQ 18 INTERNATIONAL MONETARY FUND the multiple currency practice, with a view to accepting the obligations under Article VIII. The improvement of the AML/CFT framework, in line with the MENA-Financial Action Task Force (FATF) recommendations, and FATF standards, together with the ongoing efforts in strengthening AML/CFT supervision by the CBI, would help address money laundering and terrorism financing concerns.

 

[BJinMontreal]

Thank you Trinity ... we shall see what the IMF has to say soon, I hope.

Hopefully a scathing report telling the CBI to pee or get off the pot!!

[FlyHi]

Relief (RV) begins with a P ??!!