Why is the Central Bank of Iraq seeking to issue a new monetary category?

The Central Bank of Iraq is heading to issue a new category of the local currency for monetary circulation that is not very high, after the depreciation of its currency against the dollar, in a move described as useless and will increase inflation on the one hand, and its goal is to improve the efficiency of the performance of the cash payments system in the country in intermediate currencies that serve the speed of monetary exchange Facilitating the settlement of transactions and payment methods within the economic community on the other hand.

This trend came on the lips of the Governor of the Central Bank of Iraq, Mustafa Makheeb, who revealed in an interview that the Central Bank of Iraq intends to issue a new denomination of the Iraqi currency with a value of 20 thousand dinars (approximately 13 dollars) based on a study and research compared with neighboring countries, and is working to complete the form of the paper In the coming days, it will be announced.

During the post-2003 years, the Iraqi currency went through volatile and volatile stages that lost its local value and market influence, but it was subjected to what can be described as a “semi-collapse” on December 21, 2020 when the Central Bank reduced the exchange rate from 1190 to 1450 dinars against One dollar, with the aim of better managing payments and the economic crisis in the country, and estimated that the value of the local currency in the market would fall by about 22% of its previous value.

repercussions and risks

The devaluation of the Iraqi dinar against the dollar resulted in significant repercussions, as this resulted in increases in the prices of most consumer and food materials and services, in particular, by more than 45%, according to economic estimates, which reduced the economic welfare of the local currency against other currencies and the dollar. specifically.

And what made the recent devaluation of the Iraqi dinar against the dollar, which is the harshest and most harmful - according to experts in economic affairs - was that it came at a time when the correct premises were not available in terms of the existence of a reliable base for industry and agriculture and the availability of a commodity alternative to many imported industrial and agricultural commodities whose prices had risen. Also, the change in the exchange rate was sudden and not gradual.

What makes the devaluation of the Iraqi currency in embarrassment due to its low price, is that the country’s economy is single in production and relies on oil exports to secure its annual budgets. In other words, decreasing the exchange rate does not contribute to an increase in oil exports, since the latter’s prices are set in the world market by a single price system.

This report answers a set of questions: What are the main reasons for launching the new Iraqi currency at a value of 20 thousand dinars (about $13)?

What are its pros and cons?

Then what role is it supposed to play in improving the image of the local currency after a wave of "semi-collapse" following the rise in the price of the dollar and its depreciation about 3 years ago?

What are the pros and cons of the new cash category?

Member of the Iraqi Parliament’s Finance Committee, Jamal Cougar, disagrees with the Iraqi Central Bank and believes that it was more appropriate to print small denominations of cash, such as the 150 dinars denomination, but he went to print a new denomination (20 thousand) between two currencies far from each other (10 thousand and 25 thousand) and there is no Between them any other currency.

Speaking to Al-Jazeera Net, Cougar expressed his support for printing small currencies instead of large or high currencies because it contributes to creating space for goods entering the country, so that they are sold in a way that serves the citizen more, for example, there is no goods in Iraq whose price is less than (250 dinars) because there is no A currency less than that, but the situation would have been better if there was another currency that was less, such as 150 dinars.

The Iraqi MP proposes to print the new category gradually, not in one batch and for varying periods, especially since there is talk about the possibility of printing about 70 trillion Iraqi dinars (about 45 billion dollars) for several categories, especially the 25 thousand dinars category, warning of market inflation in the event that all payments are made. These quantities of categories printed to market.

Cougar expressed his support for printing small currencies instead of large ones, for their contribution to creating space for goods entering the country (Al-Jazeera)

What is the supposed role of the new class?

The appearance of Muhammad Salih, the financial and economic advisor to the Prime Minister, shows the assumed role of the new monetary category, saying that it comes within the framework of improving the Central Bank’s policy in managing the cash payments system, which required - through experience - the need to issue a category (intermediate currency) divisible by two to facilitate Cash payments (not large) within the cash circulation system.

In an interview, Saleh denies that the issuance of a new category of monetary circulation is an expression of inflationary conditions, but rather a measure to improve the efficiency of the performance of the cash payments system in the country with intermediate currencies that serve the speed of monetary exchange and facilitate the settlement of transactions.

Does the issuance of the new category contribute to the increase in inflation?

Economic researcher Diaa Al-Mohsen acknowledges in his response to a question regarding the possibility of whether or not the issuance of the new category contributes to increasing inflation.

The lack of any benefit from the idea of ​​the Iraqi Central in this approach as much as it will be a burden on the economy, as "the more monetary issuances will lead to the disappearance of other monetary categories in the market, and this may lead to a kind of inflation in the Iraqi economy, which exceeded 6%."

Al-Mohsen describes this in his speech to Al-Jazeera Net as a "dangerous indicator of the economy", especially since the country's economy is rentier and the real sectors are ineffective, while stressing that Iraq does not need to issue a new currency because it will affect the inflation rate and therefore the citizen will be harmed by this issuance instead of being a benefit to him. .

Al-Mohsen believes that Iraq does not need to issue a new currency because it will affect the inflation rate (Al-Jazeera)

What is the purpose of printing a new banknote?

In the case of the Central Bank of Iraq, the main objective of issuing a new currency of 20 thousand dinars comes to give individuals greater flexibility in local commercial and financial transactions and obligations, according to the talk of the economist and academic Dr. (as an ordinary paper) and its actual amount after trading in the markets, and therefore there is no loss or waste of public money.

In return for the printing of any currency by the central banks, Daadush requires that it be matched by assets or assets, whether foreign assets or domestic credits, and then we see the goals that central banks want from issuing or printing new banknotes (or adding new categories of currency), in addition to not Ignore printing costs for new or added currency.

The economic expert comments on the possibility of the Iraqi currency entering another stage of collapse against the US dollar - as it is said from time to time - that the oil dollars leading to an increase in foreign reserves with the Iraqi Central prevent the collapse of the local currency, through the foreign currency sale window, and also led to confidence Relatively individuals in dinars, and the narrowness of the dollarization phenomenon that the Iraqi economy was suffering from.