Economic Expert: Iraq Can Not Trade In Its Local Currency !

[gregp]

4th quarter sounds good!

GM

[DinarThug]

Reduction of exchange rate: costs and benefits

 

11th October, 2017
 

Dr. Mohammed Saleh appearance

Financial and economic adviser to the Iraqi prime minister

In the various export-oriented countries, the devaluation of the currency due to the balance of payments difficulties leads to competitive advantages that increase the value of exports and reduce the flow of imports according to the elasticity of commodities, as do Turkey, Iran, China and others. Positive in the current account balance of payments improvement towards the balance and overcome the deficit, which is one of the functions of monetary policy in achieving external balance.

When the deficit in the current account rises to a ratio of more than 3%, the monetary authorities devalue the currency in proportion to a more flexible interest rate policy to improve the balance of payments financial account by attracting foreign investment and Direct promise is accompanied by the imposition of balance or external stability.

In the single economies, which are exported exclusively to the main raw materials such as oil, copper or others, where these economies rely entirely on meeting the domestic demand for a great variety of imports, mainly in diversifying their commodity supply, the goods imported from abroad, Prices will be inflated immediately and directly because of the fall in the exchange rate accompanied by a rise in inflationary expectations (due to the deterioration of the external value of money) and this imposes a pressing social and economic burden on fiscal policy requires the support of prices reflected in increasing The general budget, especially the cost of foodstuffs, medicines, raw materials and basic imported and subsidized prices and others to address the problems of low consumer welfare or increasing the burden of living and then address the deterioration of individual savings potential, which erodes the strength of inflation (due to the devaluation of the currency)

But what is the benefit of fiscal policy? Differences in financial benefits and costs can be identified as follows:

1 - The fact that export revenues from raw materials such as oil or other primary raw materials are often sovereign in nature and because of the devaluation of the currency to provide the state budget with the proceeds of the new inflation, the budget deficit will address the same E. Achieving revenues through additional inflationary In other words, additional financial benefits will be achieved through the returns resulting from the low exchange rate of the local currency against foreign returns, and obtaining cash checks in the local currency to go to the budget, called transfer revenues. They are thus equivalent to the exchange rate declines.

2. However, this advantage in inflationary returns will remain a partial advantage in the interest of fiscal policy. Monetary policy and its measures to address the balance of payments deficit by reducing the exchange rate do not exempt at the same time fiscal policy from carrying additional costs managed by the state budget administration through the development of allocations Additional basic hedging equivalent to the amount of the lower exchange rate itself to compensate for the cost that will rise in the value of foreign government transactions, which will adversely affect the reduction of the local currency exchange rate against foreign currency. For example, all government imports or the value of government commitments to the world M external (debt and services such as payment of dues and arrears and other obligations). As well as the high cost of internal government procurement, which will be affected by inflation caused by the decline in the external value of money, the low exchange rate of the local currency and the rise in prices of consumer goods and intermediaries imported in the local markets, which represent government procurement. This compensation to government financial burden due to negative monetary effects of monetary policy will increase The costs of fiscal policy or government budget burdens in general. For example, through a so-called cost-benefit calculation, a 10% reduction in the exchange rate, for example, will cause inflation in the prices of goods, services and wages, possibly up to 10% or more. The general level of prices is usually driven by the dynamics of inflationary expectations that will affect the cost of stocks and all contractual obligations. And that this compensation to government bailiffs due to negative monetary effects of monetary policy will increase the costs of fiscal policy or the burden of the government budget in general. For example, through a so-called cost-benefit calculation, a 10% reduction in the exchange rate, for example, will cause inflation in the prices of goods, services and wages, possibly up to 10% or more. The general level of prices is usually driven by the dynamics of inflationary expectations that will affect the cost of stocks and all contractual obligations. And that this compensation to government bailiffs due to negative monetary effects of monetary policy will increase the costs of fiscal policy or the burden of the government budget in general. For example, through a so-called cost-benefit calculation, a 10% reduction in the exchange rate, for example, will cause inflation in the prices of goods, services and wages, possibly up to 10% or more. The general level of prices is usually driven by the dynamics of inflationary expectations that will affect the cost of stocks and all contractual obligations.

3. Although the budget is partially benefiting from the benefit of devaluation due to the increase in the value of its dollar revenues and its ability to replace it with a cheap dinar in which the nominal budget is used to bridge its deficit as an inflationary tax levied at the expense of the standard of living, In all cases, the ratio is often less than 50% of the cost of the reduction process. Which means that the results of the reduction on the budget proceeds will remain partial in such economies and may not compare to the expression (tax) price disturbances or price deflation

In conclusion, in the economies of the countries exporting raw materials, the results of the reduction is not reflected at all on the improvement of external demand for exports, whether oil or raw materials because the prices of those raw goods are determined in the world market and according to the so-called price system one price system.

[mr.unlikely]

On 10/5/2017 at 10:27 PM, normala rashid said:

we need wait the 2018 budget ..everything clear.. we will see  what's going happens ... HCL+ 140 +  RATES  . 

HCL + 140 + rates = wait some more 

[10 YEARS LATER]

These folks really can talk a thing to death and get nowhere at the end of it: only to announce more dialogue on an issue (s).

 

We could have " dialogue " and " crisis " & " promising news " and 2018 will come and go, while we're all here waiting. How many years have we dealt with the " the sky is falling " scenarios? 

 

A "call " for this or that and it all just slides away at some point making way for a New crisis.

Id like to think 1st quarter of 2018 will be the RV TRIGGER PULL. Won't hold my breath. These fools can't seem to get out of there way. Abadi has a very difficult time with these mutton heads; Kurds and his own people seem hell bent of fracturing everything.

[DinarThug]

(by don961)

Monetary conditions in unregulated markets

 

10/12/2017 2:27:40 AM

 

 

 

BAGHDAD /

Renting money in Iraq:

In the context of thinking about one of the prevailing concepts in monetary science called monetary conditions that depend on a standard called the index of those conditions (MCI - which calculates the linear structures of a few of the financial market variables across the economy and in particular the nominal rates of short-term and rates Local currency exchange rates against foreign exchange. 
It has led me to consider the question of analyzing the monetary conditions and monetary behavior of individuals in the unorganized market in Iraq (a market that has often been confined to cash credit outside the formal or legal banking system and also behaves in its behavior outside monetary power controls) Which are under the supervision and control of the cash authority directly. 
Between these two markets, there are changes in monetary transactions towards a rising trend of interest-bearing riba-speculative cash transactions outside the formal banking system. It is an innovative pattern of interest called "leasing money." It is an accelerated form of illegal monetary transactions to justify the non-monetary credit market Official or irregular. This credit is mostly related to speculators' needs for foreign exchange. The cost of renting money is linked directly to exchange rates determined by the central central bank of the central bank and the parallel exchange market. 
The rate of renting the local currency (dinar) is today about 15 percent per month, which is very high at the annual level of nominal short-term interest. In view of the excessive amount of money and lending rates that do not fit the state of price deflation and the recession in the macro economy, The linear structures of the monetary conditions in the unorganized monetary market in Iraq and the measure of exchange rates in the parallel or unregulated market compared with the monetary structures in the organized market, especially in the areas of interest rate and exchange rate, show us. 
Cash equivalents in the parallel exchange market add average daily returns of about 30 million dinar, or windfalls, in exchange for an investment of one billion dinars and one billion dollars, or about one million dollars in the exchange market currently. This raises the question: How can we reach new or new principles to measure the monetary conditions of the unregulated cash market in Iraq? Controlling liquidity levels in the central exchange market requires the sustainability of liquidity and rapid cash circulation in the unregulated cash market. The safety valve for this sustainability in the flow of liquidity is the increase in the interest rate, which at the same time represents the cost of the flow of condensed cash transferred from the informal market to the regular market. 
The question here is: How much does the monetary authority have to pay for the risk premium, which is to absorb additional surpluses from the liquidity of the cash-transfer lever, which accounts for 77 percent of the total currency exported in Iraq? How much is the sacrifice of foreign reserves in order to impose price stability due to the rapid rotation or circulation of effective liquidity driven by interest rates? At a time when the exchange rate and stability remains the nominal stabilizer in influencing the stability of the overall level of prices. 

(A) The rental of money and non-compliance in monetary terms

The idea of the speed of circulation of money goes to the rate at which the monetary unit is exchanged through various transactions or between one transaction and another, how many monetary units are used over a given period of time, and the speed of money circulation at the macroeconomic level is measured by the ratio of GDP to cash supply, Regardless of how money is measured, it is a measure that suggests that monetary growth leads to inflation. The speed of money circulation is a phenomenon that is realized when individuals desire to give up money or invest in it. 
Otherwise, any factors that call on individuals to keep money (ie, increasing cash demand / reverse money circulation) will lead to a decline in trading speed, while greater factors of spending or investment spending increase the speed of money. 
In the Iraqi economy, there is an active phenomenon that is dominated by monetary transactions and affects the speed of circulation of money issued by unregulated markets where traders, brokers, brokers, money-changers, and the promotion of rental money to add some of the customary legitimacy to these new forms of interest. 
There is a need to finance the foreign trade of the private sector, which annual activities of about 40 percent of non-oil GDP per year. The need to finance trade and foreign transactions is increasing in the demand for funds from outside the banking system because of the failure of the device to grant cash credit to the civil sector which Does not exceed 5 percent of GDP and 12 percent of adults can access cash from the regulated market because of the lack of formal banking system, while more than 40 percent of adults resort to the unregulated market or T official not formal to get cash credit by acting desired (and through the mechanism of rent money and cost usurious expensive).

As the cost of cash credit by renting money in the unregulated markets by at least 15 percent per month, as we have said. Thus, the speed of cash circulation is very high driving the development of unregulated markets accompanied by the phenomenon of monetary leasing of the currency ( The high rate of cash circulation outside the banking system or the emergence of a monetary demand function for the stockholders has been inversely related to high interest rates and according to the cash leasing mechanism. In other words, the speed of money circulation is directly related to high riba rates. 
But the question remains, where does this increasing liquidity in circulation go through monetary leasing and what are their areas of employment most often without a little inflation due to effective monetary spending? On the contrary, the economy is still constrained by high deflationary effects in terms of low growth rates, high unemployment and stagnant price! 
There is a case of negative inconsistency in the monetary terms ie between the role of the central bank's window to sell the foreign currency (auction) as a monetary policy and between the money leasing market as a financing behavior practiced by the civil sector. The central bank's role is to control local liquidity levels, a monetary policy that sometimes leads to a cash crunch and a lack of liquidity if the liquidity rate is not correctly estimated or forecasted.

The unregulated market is active in raising the cash rent rates in dinars, generating a surplus in demand derived on foreign currency. The demand for the foreign currency financed by the surplus dinar is commensurate with the degree of the decline in the dinar's exchange rate against the foreign currency in the parallel markets. Cover the cost of monthly cash rent.A logical equation is also achieved in economic relations and ratios within the unregulated market itself. It is known that the lower the local currency exchange rate, the higher the interest rate. The negative separation or incompatibility between the regular market and the informal market occurs within the economic system. Cash by means of the mechanism of cash lease. Where interest rates are lower than the interest rates in the cash lease, while the exchange rate of the dinar against foreign currency is higher in the organized market compared to what is in the parallel market. This is the case of monetary conditions inconsistency between the two markets (organized and unorganized). 

2 - Monetary policy and the crisis of cash lease

It is clear that there are two cash markets working in their behavior and directions on different terms or conditions and according to the basis of Mutual Mutual. The phenomenon of monetary leasing, where the speed of circulation of cash is often condensed, is a source of excess demand on the reserves of the Central Bank of Foreign Affairs, which means sacrificing one of those precautions to counteract the liquidity of the effective was idle or choked movement of money market levers (RBA). Monetary policy pays an extra price for stability and is generated by interest rate shocks in the money market in order to maintain exchange rate stability and to counter the devaluation of the foreign dinar. 
The sacrifice of foreign reserves as a result of excess domestic liquidity and sudden shocks in currency levers is a risk premium and additional costs to monetary policy. Instead of the cash surpluses outside the banking system, savings deposits that serve real investment turn into a surplus monetary demand for cash transactions Foreigner through the windows and gates of monetary policy. 
Based on the above, the monetary policy of the central bank to maintain the stability of the general level of prices and reduce inflation using foreign currency as a means of defense or stabilized nominal anchor in the stability of the external value of the dinar, not born (in the presence of two cash markets) only cases of costs and additional charges not desired On foreign reserves, which are inversely proportional to the rise in short-term nominal interest rates in the unregulated cash market (ie cash leases). 
In the low general level of prices (by defending a stable exchange rate of the dinar), the unregulated cash market indicates that the real interest rate is the nominal interest rate on the regulated market minus the difference between the exchange rates of the dinar between the regulated and unregulated markets. Cash leasing, high leverage and the corresponding stability in the official exchange rate is only an expression of the risk premiums that monetary policy defends from its foreign reserves to control the liquidity levels that cash leaks as cash surpluses that are appropriated by the central bank's monetary policy windows (auction). 

3. Conclusions

The monetary conditions in the market are conservative conditions of maintaining the stability of the Iraqi dinar exchange rate (although the current account deficit of balance of payments), which is followed by the stability of interest rates in the organized market, including the monetary policy interest rate (which reflects the interest rate) Real positive at about 6 percent per annum), which are matched by different monetary conditions in the unregulated market. On the contrary, an excessive rise in real short-term interest rates in the unregulated or illegal cash market is as high as 15 percent per month The return on the corresponding earnings per Dinar is achieved by the parallel exchange markets, ie, the two exchange rate differentials of the dinar in exchange markets plus the monetary policy interest rate in most cases. 
Therefore, if the monetary policy to adjust the interest rate and pointed upwards in order to attract excess liquidity and sharpened from the unregulated cash markets as an alternative to the flow towards the central monetary window, this does not mean in light of the phenomenon of inflationary prevailing only a contraction of economic real activity and deepen the imbalance conditions Monetary conditions for the unregulated or informal market. If monetary policy is to sacrifice the exchange rate and stabilize it towards devaluation of the dinar and create inflationary waves, the local currency rental market will feed inflation by maintaining a positive real interest rate that is constantly generated by inflationary expectations that ultimately maximizes the cost of managing monetary policy and drains reserves Hotfile. 
Therefore, there is no alternative but to promote medium-term hybrid financial instruments (3 years) as central bank bonds that are to be bought through the cash market with balance-sheet interest and repayable at maturity in foreign currency and at a cash exchange rate as an alternative to cash liquidity (whenever possible). Such financial instruments and instruments are instruments of assistance that enable the imposition of behavior that is a case of consistency in the monetary conditions between the two markets (the regulated cash market and the non-market) 
the organization).

The impact of the monetary behavior of unregulated markets and their penetration of the official financial instruments hybrid and the growing market of the leaked currency and monetary terms harmful to the cost of managing monetary policy, and this monetary consensus between the markets organized and unorganized monetary policy objectives are achieved in controlling excess liquidity levels and generate stable price expectations without Additional costs borne by the monetary authority. 

Iraqi newspapers

 

 

Terms-Cash-in-Markets-Non-Organization

link

[Synopsis]

39 minutes ago, DinarThug said:

Cash equivalents in the parallel exchange market add average daily returns of about 30 million dinar, or windfalls, in exchange for an investment of one billion dinars and one billion dollars, or about one million dollars in the exchange market currently. 

 

Thank You, DinarThug, for posting this and all the other great articles! The Best Of Your Weekend To You and All DV! 

 

OK everybody, now DO NOT (I repeat DO NOT) get excited here. This may have been a previously constructed news article from some time ago authorized to be released now or may have been released for future implications. So, I dunno.   I may have gotten lost in the translation. I do not know if this article is referencing IQD currency exchange markets outside of Iraq as well as inside Iraq.

 

I do find it odd that 1 billion IQD = 1 billion USD with an apparently exchange fee of 1 million USD per transaction or about 0.1%. The 0.1% exchange fee sounds about right but I have no idea if this is reasonable or not. So, for 30 million USD in exchange fees daily, there is nominally 30 billion IQD changing hands for 30 billion USD daily. I suspect this volume under the radar would have to be done by the UST. OK, everybody, pure speculation here with the aforementioned disclaimers. This may or may not be correct in any sense of the term and likely is no indicator of timing.

 

Again, Have A Great Weekend DV!

 

In The Mean Time........................................................

 

YEAH, BABY!!!!!!!!!......................................................

 

Go Moola Nova!

 

 

Edited October 13, 2017 by Synopsis

[Freedomwish]

Many gracias Synopsis........but I'm gonna hit the bar hard tonight....information overload today.....

Keeping the faith!! 

More whisky a coming!! 

 

[Synopsis]

1 hour ago, Freedomwish said:

Many gracias Synopsis........but I'm gonna hit the bar hard tonight....information overload today.....

Keeping the faith!! 

More whisky a coming!! 

 

 

All The Best, FreedomWish, and The Best Of Your Weekend To You! 

 

Go Moola Nova!

 

 

[unirod]

Bottom of first section: What I gather from the article is that the auctions mask the real velocity of cash flow. And they control the circulation of cash to the detriment of discovering the real value of the IQD. The auctions also cook the books regarding the real inflation rates.

To my knowledge there is no other economy in the world that operates using currency auctions in the way Iraq does it.

[ChuckFinley]

On October 9, 2017 at 8:24 PM, nannab said:

 

Hi Yota I found an article you posted in March 2017. Under the search I put in Iraqi payment system from 2017.

 

The title was Central: Financial sector management Electronicly end of 2017. 

 

Oops I sent it to you Chuck by accident. Someday I will get this right. 

No worries, always willing to share and learn.  

[nannab]

[ChuckFinley]

1 hour ago, Laid Back said:

Iraq needs to open to the world to start the reconstruction of all devastated areas 

 

With an stronger dinar the reconstruction will be cheaper.

 

Go openness to the world

Go stronger dinar

Go market economy 

Go success 

We can not say it enough, just got to get them to listen.   

[DinarThug]

10 hours ago, ChuckFinley said:

We can not say it enough, just got to get them to listen.   

 

They Don't Listen Unless Ur Talking Out Ur  Like They Do !  

 

     

[ChuckFinley]

On October 13, 2017 at 3:58 PM, Freedomwish said:

Many gracias Synopsis........but I'm gonna hit the bar hard tonight....information overload today.....

Keeping the faith!! 

More whisky a coming!! 

 

If I lived closer I would join you.  

[Laid Back]

2 hours ago, ChuckFinley said:

We can not say it enough, just got to get them to listen.   

Correct my friend ChuckF.

[jcfrag]

11 hours ago, DinarThug said:

 

They Don't Listen Unless Ur Talking Out Ur A$$ Like They Do !  

 

     

The few intelligent Iraqis over there that don’t speak “OutURAss” are talking to us, cause we know a speech like that would go right over the heads of all the embezzlers and 3/4’s of the decision makers. They really have to start pushing harder to get the likes of Maliki out of office and into jail to show the rest of the crooks they are no longer protected. That would send them all running for the border!!! It would be like all the rats racing out of Baghdad at once!!!