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The foreign exchange shock...signals for correcting the macroeconomic policy perspective
Dr. Haitham Hamid Mutlaq Al-Mansour
In light of the new shock of the rise in the dollar exchange rate from its target level beyond the threshold of 1,600 dinars per dollar in the parallel market at the beginning of the last quarter, and the resulting rise in the general level of prices, the Iraqi dinar began to suffer a significant decline in its real value, causing a decline in income levels.
The real value of individuals and economic units , and with increasing expectations that the gap between the actual and target prices will continue to widen, the foreign exchange movement and the repeated shocks it is exposed to are an important input into analyzing the reality of the monetary economy and macroeconomic policy, through the following axes:
1. The duality of the price system and the restriction of public spending in the absence of traditional economic balance, as economic activity suffers from real problems in its internal structure that are reflected in the method of managing the exchange rate and choosing the appropriate system to manage it, and the accompanying outcomes of this duality of economic restrictions that work to unsustain the stability of the exchange rate within the target.
This includes the decline in the effectiveness of macro policy in achieving its goals of stabilizing the general level of prices and economic growth.
2. The increased flexibility of financial transfer channels used in foreign trade in light of the obsolescence of financial transfer channels, which creates difficulty in managing the supply of the dollar, reducing demand for it and lowering the actual exchange rate.
Therefore, the technical limitation of the tools of state authority over dollar flows is one of the real challenges to the financial situation in Iraq.
3. The policies of the US Federal Bank, and the package of financial, monetary and commercial conditions that the government and the central bank are required to implement in order to reduce the severity of the smuggling or exit of the dollar to countries besieged by economic sanctions.
4. The decline in the efficiency of fiscal and tax policy tools on foreign trade outlets, which allows two negative movements to occur against the rhythm of adjusting the dollar currency and the exchange rate:
● Dumping policies followed by the blockading countries increase the demand for the dollar.
● The exit of a large percentage of the monetary dollar mass of the aforementioned countries.
5. Decreased compliance of some banks with financial and monetary control tools in a way that reduces the ability of monetary policy to control the pace of financial transfer and the sale of the dollar.
6. Weak outcomes of coordination between fiscal and monetary policies: The failure to implement laws supporting the trade protection policy, including the customs tariff law, the local product protection law, the competition and antitrust law, and the consumer protection law, which are considered among the most important steps for the effectiveness of monetary policy and enabling it to perform its functions towards the goal of stability at the general level. For prices.
7. The fluctuation of the flow of dollar revenue receivables for oil exports from Iraq's credit account and the occurrence of some bottlenecks that negatively affect the supply of the dollar.
Therefore, the continued exposure of the market to the fluctuations of foreign exchange shocks shows a decline in the degree of responsiveness of the exchange system to monetary policy tools.
If the exchange rate continues to move beyond the 1600 threshold, inflation is expected to have a greater impact on the income cycle, the behaviors of economic units, and the movement of consumption, investment, and saving than This leads to a re-evaluation of their balance sheets according to changes in inflation.
This will reflect on all aspects of economic life, as the continued rise in inflation means the dominance of inflationary expectations that fuel other rises, which deepens the problem.
Despite the multiple and continuous measures taken by the Central Bank to restrict the movement of the dollar around the target and raise the exchange system’s response to its monetary tools, the inflation index is still high, which means that the response is still low, due to the fact that the economy needs a combination of several policies in order to calm and stabilize inflation at the target.
Therefore, the monetary authority alone cannot be able to contain the scope of the problem,
but rather requires coordination with other relevant policies, to correct the degree in the perspective of macroeconomic policies and adopt a government plan with a short-term path and the other with a medium-term path that limits recurring shocks and achieves the goal of reducing the exchange gap between the actual and target rates. According to the following indications:
1. Reducing the demand gap for the dollar, by creating effective alternatives to achieve a balance between the supply of the dollar and the demand for it, in light of auditing and examining the movement of transfers via documentary credits according to the electronic platform and auditing the movement of the cash dollar.
2. Developing the performance of the financial policy arms through tightening the ports of foreign trade movement and examining and organizing import operations with customs controls and regulations that would limit the phenomenon of commodity dumping, including increasing import flexibility towards the goods of the besieged countries, to support the local product, or to divert part of the trade away from those countries.
Then, work to reduce the impact of the external variable by increasing response to the Federal Reserve’s policies and the package of financial conditions proposed to the government to restrict dollar smuggling activities and enhance the transparency of international transfer activities.
3. Maintaining the flow rate of oil revenue receivables within its normal rate from Iraq’s credit account to avoid recurring bottlenecks, by reorganizing the practical perspective of macroeconomic policy and the Federal Reserve’s policy.
Views 10 Added 11/02/2023 - 8:48 PM
https://economy-news.net/content.php?id=37222
U.S. dollar
ArticlesDr. Haitham Hamid Mutlaq Al-Mansour
In light of the new shock of the rise in the dollar exchange rate from its target level beyond the threshold of 1,600 dinars per dollar in the parallel market at the beginning of the last quarter, and the resulting rise in the general level of prices, the Iraqi dinar began to suffer a significant decline in its real value, causing a decline in income levels.
The real value of individuals and economic units , and with increasing expectations that the gap between the actual and target prices will continue to widen, the foreign exchange movement and the repeated shocks it is exposed to are an important input into analyzing the reality of the monetary economy and macroeconomic policy, through the following axes:
1. The duality of the price system and the restriction of public spending in the absence of traditional economic balance, as economic activity suffers from real problems in its internal structure that are reflected in the method of managing the exchange rate and choosing the appropriate system to manage it, and the accompanying outcomes of this duality of economic restrictions that work to unsustain the stability of the exchange rate within the target.
This includes the decline in the effectiveness of macro policy in achieving its goals of stabilizing the general level of prices and economic growth.
2. The increased flexibility of financial transfer channels used in foreign trade in light of the obsolescence of financial transfer channels, which creates difficulty in managing the supply of the dollar, reducing demand for it and lowering the actual exchange rate.
Therefore, the technical limitation of the tools of state authority over dollar flows is one of the real challenges to the financial situation in Iraq.
3. The policies of the US Federal Bank, and the package of financial, monetary and commercial conditions that the government and the central bank are required to implement in order to reduce the severity of the smuggling or exit of the dollar to countries besieged by economic sanctions.
4. The decline in the efficiency of fiscal and tax policy tools on foreign trade outlets, which allows two negative movements to occur against the rhythm of adjusting the dollar currency and the exchange rate:
● Dumping policies followed by the blockading countries increase the demand for the dollar.
● The exit of a large percentage of the monetary dollar mass of the aforementioned countries.
5. Decreased compliance of some banks with financial and monetary control tools in a way that reduces the ability of monetary policy to control the pace of financial transfer and the sale of the dollar.
6. Weak outcomes of coordination between fiscal and monetary policies: The failure to implement laws supporting the trade protection policy, including the customs tariff law, the local product protection law, the competition and antitrust law, and the consumer protection law, which are considered among the most important steps for the effectiveness of monetary policy and enabling it to perform its functions towards the goal of stability at the general level. For prices.
7. The fluctuation of the flow of dollar revenue receivables for oil exports from Iraq's credit account and the occurrence of some bottlenecks that negatively affect the supply of the dollar.
Therefore, the continued exposure of the market to the fluctuations of foreign exchange shocks shows a decline in the degree of responsiveness of the exchange system to monetary policy tools.
If the exchange rate continues to move beyond the 1600 threshold, inflation is expected to have a greater impact on the income cycle, the behaviors of economic units, and the movement of consumption, investment, and saving than This leads to a re-evaluation of their balance sheets according to changes in inflation.
This will reflect on all aspects of economic life, as the continued rise in inflation means the dominance of inflationary expectations that fuel other rises, which deepens the problem.
Despite the multiple and continuous measures taken by the Central Bank to restrict the movement of the dollar around the target and raise the exchange system’s response to its monetary tools, the inflation index is still high, which means that the response is still low, due to the fact that the economy needs a combination of several policies in order to calm and stabilize inflation at the target.
Therefore, the monetary authority alone cannot be able to contain the scope of the problem,
but rather requires coordination with other relevant policies, to correct the degree in the perspective of macroeconomic policies and adopt a government plan with a short-term path and the other with a medium-term path that limits recurring shocks and achieves the goal of reducing the exchange gap between the actual and target rates. According to the following indications:
1. Reducing the demand gap for the dollar, by creating effective alternatives to achieve a balance between the supply of the dollar and the demand for it, in light of auditing and examining the movement of transfers via documentary credits according to the electronic platform and auditing the movement of the cash dollar.
2. Developing the performance of the financial policy arms through tightening the ports of foreign trade movement and examining and organizing import operations with customs controls and regulations that would limit the phenomenon of commodity dumping, including increasing import flexibility towards the goods of the besieged countries, to support the local product, or to divert part of the trade away from those countries.
Then, work to reduce the impact of the external variable by increasing response to the Federal Reserve’s policies and the package of financial conditions proposed to the government to restrict dollar smuggling activities and enhance the transparency of international transfer activities.
3. Maintaining the flow rate of oil revenue receivables within its normal rate from Iraq’s credit account to avoid recurring bottlenecks, by reorganizing the practical perspective of macroeconomic policy and the Federal Reserve’s policy.
Views 10 Added 11/02/2023 - 8:48 PM
https://economy-news.net/content.php?id=37222
