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Showing results for tags 'THE GURUS HAVE MESSED UP'.
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MUST READ - STOP WATCHING THE AUCTIONS Central Bank’s foreign exchange auction Let us note, first, that in spite of what is termed ‘auction’, Iraq, like most oil exporting countries in the region, has been following fixed-exchange-rate arrangement (to US$) since the beginning of 2009. Furthermore, let us refer to auction rate of exchange as ‘official’ rate to distinguish it from ‘market’ rate; which is used by banks and money exchangers. To meet demand, auction US$ sales (henceforth, sales) to participating banks include two types of transactions, international transfers and cash payments. International transfers, which make the majority of transactions, are intended mainly to finance imports by the private sector. Cash sales serve to meet payments for travel, medical expenses, etc. The purposes, that these two types of transactions serve, define what can be called ‘auction rules’, which insure that sales meet ordinary demand. They have been erroneously described as stocks, which are ‘put aside’ for emergencies only. Such misconception could have insinuated a misunderstanding, on the part of politicians and non-specialists that international reserves can be readily used as free finance. In reality, instead of being ‘put aside’, they are continually used through additions and withdrawals. For instance, purchases (or receipts) of US$ by the CBI add to the reserves, while auction sales withdraw from them. Reserves rise when additions outweigh withdrawals and vice versa. Furthermore, international reserves as assets are completely balanced by liabilities (obligations). Therefore, using them, independently of obligations, results in disequilibrium in the exchange market and the economy as a whole. Link Below. Foreign Exchange Auction, International Reserves, and Central Bank Independence in Iraq*, by Ali Merza Monetary Policy