Stabilizing Iraq's exchange rate: academic study
Shafaq News/ As the price ?f the dollar continues t? fluctuate, an Iraqi researcher, Ahmed Abdullah Akil, presented potential solutions t? stabilize and control the dollar exchange rate ?n his master's thesis discussion at the College ?f Management and Economics at Tikrit University.
Akil's thesis concentrated ?n the role ?f the Central Bank and the currency sale window ?n stabilizing the dinar against the dollar, emphasizing the importance ?f preserving foreign currency reserves.
"The study aims t? understand and measure the impact ?f some central bank tools ?n achieving stability ?n the Iraqi dinar exchange rate against the US dollar from 2004 t? 2022. It seeks t? identify flaws hindering the stability ?f the local currency value within the Iraqi economy's context. Preserving the value ?f the local currency has been the primary goal ?f the bank t? maintain price levels, primarily tied t? the local dinar's level against the US dollar," Akil said.
He explained that the study analyzed and measured variables using the Eviews 13 program, revealing significant positive relationships between some central bank tools as independent variables and the official and parallel exchange rates as dependent variables ?n the short term. However, some tools, such as legal reserves and discount rates, were found ineffective ?n influencing the currency exchange rate, with limited impact ?n inflation.
"While interest rates and the currency sale window positively impacted the local currency value by reducing the nominal exchange rate, recent years have seen a resurgence ?n the nominal exchange rate due t? decisions from the monetary authority t? address public expenditures and global health crises," Akil added, noting the impact ?f declining oil prices, which constitute the primary source for the US dollar due t? Iraq's rentier economy.
The decline ?n oil prices, exacerbated by interruptions ?n the Red Sea since November 19, 2023, due t? conflicts, has strained Iraq's foreign reserves and increased depreciation pressures ?n the Iraqi dinar against the US dollar.
Akil also highlighted the effects ?f increased demand for foreign currency and currency smuggling ?n exchange rate fluctuations. Despite the Iraqi government's approval ?f setting the exchange rate at $1 t? 1,300 IQD, smuggling has prevented reaching the suggested value, with the dollar's value currently exceeding 1,500 IQD ?n the Iraqi and Kurdistan Region currency markets.
Emphasizing the importance ?f maintaining foreign reserves and diversifying sources for acquiring foreign currency, t? prevent dependency ?n oil prices, Akil stressed the necessity ?f "accelerating development ?n Iraq, activating the real sector, revitalizing industry and agriculture t? reduce imports t? alleviate pressure ?n foreign reserves ?f the dollar", as well as tightening regulatory measures t? prevent currency smuggling and stabilize the exchange rate.
The study proposed several recommendations, including continued operation ?f the currency sale window without excessive use ?f foreign reserves, diversification ?f sources for acquiring foreign currency through economic development, industry, and agriculture activation t? reduce imports, and tightening regulatory measures t? prevent currency smuggling and stabilize the exchange rate.
