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A government advisor explains the possibility of using the dinar instead of the dollar in oil sales
economy Yesterday, 11:39
Baghdad - IA - Nassar Al-Hajj
Today, Sunday, Advisor to the Prime Minister for Financial Affairs, Mazhar Muhammad Saleh, clarified what is being circulated in some media regarding the possibility of using the dinar instead of the dollar in oil sales.
Saleh said in an interview with the Iraqi News Agency (INA):
“Adopting the dinar in oil pricing, or the so-called (petro dinar), especially when the national currency is not one of the international reserve currencies, the matter initially requires the availability of foreign reserve currencies or gold, as Russia did.” When Russian oil is bought with rubles covered in gold, it causes problems that we will come to later.” He added,
"These foreign reserves must be available (as a necessary condition) and operate according to a high standard of efficiency that guarantees the stability of the exchange rate linked to oil (the petro-dinar) in order to hedge against fluctuations in oil prices to ensure the stability of the exchange rate (the petro-dinar) itself to begin with." He continued,
"Linking oil sales to the dinar on a fixed basis to oil prices instead of the base of foreign reserves means linking the dinar to the cycle of oil assets first, and that
oil is sold according to international oil prices.
If the exchange rate of the dinar (petro-dinar) against (petro-dollar) is fixed, for example, and
declines." Oil prices, the demand for the dinar for accounting purposes will certainly fall, and the
dinar will be exchanged for oil in larger quantities and the demand for (petrodinar) will be less, and vice versa will happen.” He pointed out that
“any deviation between the oil prices (petrodollars) and the exchange rate (petrodinars) according to international market data will be considered a cost that requires compensation by paying lower dinars or collecting a higher dinar in the opposite case,” indicating that
“international reserve currencies are foreign currencies held by banks.” Central and international financial institutions as part of their monetary reserves.
These currencies are used in international transactions and debt settlement between countries, and are considered a standard for international payments and facilitation of global trade. He explained that
"Russia suffered a lot when it priced its exported oil in rubles (the petroruble) and the
ruble is a non-reserve currency and committed to a value for the ruble that was denominated in gold initially to ensure the stability of oil revenues.
Here (the petroruble) underwent two asset cycles at the same time (which complicated the scene of selling oil in local currency). And the stability of the value of petroruble). He pointed out that
"the first cycle: It results from the impact of the so-called gold assets cycle and its impact on the value of (petroruble) or the local currency denominated in the exported oil.
As for the second: it is the oil assets cycle, and its impact on the value of a barrel of oil outside the global price and its reflection on oil revenues." Priced in that currency. He stressed that
"the two cycles are asset cycles that are interconnected and simultaneously reflect on the value of (the currency priced with exported oil, such as the petroruble), which made pricing Russian oil in the ruble as a local currency and according to the data of the global oil market, a very complex issue." He added,
“The principle of using the dinar as a local currency in international oil exchanges (the petrodinar) is not without many challenges, which must consider these potential challenges with careful care, especially the issue of the flexibility or stability of the value of the (petrodinar) itself to change and fluctuation,
especially as we are in In the oil market, we are not price makers, but rather price takers.” He noted that
"the global oil market will control the fluctuation of the local currency (the petrodinar),
in addition to the importance of its international recognition, and the
financial infrastructure necessary to support such operations of the (petrodinar).
In other words, the strategy of relying the value of the currency directly on oil exports may make the value of the currency The local market is vulnerable to fluctuations in the global market. Saleh continued,
“The proposal to sell oil in dinars as a local currency must take into account an important theory in global trade called The Law of One Price, which is an economic concept that assumes that the same commodity must be sold at the same prices in all markets when it is expressed.” About the price in the same currency, provided that there are no transportation costs or trade barriers such as customs tariffs, etc., as
the single price theory here is the basis for many economic and commercial models, and the
theory is based on the assumption that markets operate efficiently. He continued by saying:
“The single price theory is also the basis for understanding the pricing mechanism in foreign exchange markets, as the theory seeks to explain that currency exchange rates always reflect the difference in prices between two countries, and
when oil is priced in dollars (petrodollars), the exchange rate should be The dinar (the petro-dinar) is compatible with oil prices without fluctuation, and it is also compatible at the same time with the (petro-dollar) and stably as well.
These are two issues that are difficult to control because they are among the international external factors that determine the value of the local currency so that it operates regularly and has stable price compatibility with the oil market and international foreign currencies. "At the same time."
He continued:
“For example, if a barrel of oil is sold in the United States at a price of 76 dollars and in Europe at a price of 72 euros, the single price theory predicts that, taking into account the exchange rate between the dollar and the euro, the price of a barrel of oil should be equal after adjusting The currency, provided that there are no transportation costs or trade barriers, and that
this matter requires that the value of oil sold to Europe and America correspond to the fluctuation of currency prices in order to ensure the work of the single price theory.
Thus, the adoption of the local currency in global trade is an extremely complex issue to ensure the stability of the agreement.
Oil prices are valued at the value of the Iraqi dinar (petrodinar), especially in a fixed exchange system (exchange rate), unless discounts are granted or differences are charged in oil marketing operations or floating (petrodinar), and
then the oil marketing company "SOMO", for example, will play a dual role in both policies. Oil and cash, whether in the field of oil pricing or pricing the exchange rate of the oil dinar (petro dinar).” He continued by saying:
“The strength and stability of the Iraqi dinar will remain linked to the factors of real growth and diversification in the national economy,
in addition to achieving an appropriate surplus in the current account of the balance of payments, and
linking the national currency to a basket of foreign currencies that provides stability in the value of the dinar itself.
In light of the above, the inclusion of Mechanisms for stabilizing the dinar exchange rate in a single rentier economy using the oil dinar exclusively, which is an economic trend with ambiguous results and very ambiguous, in addition to entering the (petro dinar) system, which to ensure its stability requires risks (the single price theory referred to above) in light of the fluctuations of the cycle of oil assets. And a unilateral rentier economy, not to mention the lack of knowledge of the approved exchange system (the petrodinar).
Will it be a fixed exchange system supported by foreign reserves, or will it be a flexible exchange system in which the (petrodinar) changes with the change in oil prices?
These are paths that have no answers on the ground and are very vague indeed.".
https://www.ina.iq/215025--.html
economy Yesterday, 11:39
Baghdad - IA - Nassar Al-Hajj
Today, Sunday, Advisor to the Prime Minister for Financial Affairs, Mazhar Muhammad Saleh, clarified what is being circulated in some media regarding the possibility of using the dinar instead of the dollar in oil sales.
Saleh said in an interview with the Iraqi News Agency (INA):
“Adopting the dinar in oil pricing, or the so-called (petro dinar), especially when the national currency is not one of the international reserve currencies, the matter initially requires the availability of foreign reserve currencies or gold, as Russia did.” When Russian oil is bought with rubles covered in gold, it causes problems that we will come to later.” He added,
"These foreign reserves must be available (as a necessary condition) and operate according to a high standard of efficiency that guarantees the stability of the exchange rate linked to oil (the petro-dinar) in order to hedge against fluctuations in oil prices to ensure the stability of the exchange rate (the petro-dinar) itself to begin with." He continued,
"Linking oil sales to the dinar on a fixed basis to oil prices instead of the base of foreign reserves means linking the dinar to the cycle of oil assets first, and that
oil is sold according to international oil prices.
If the exchange rate of the dinar (petro-dinar) against (petro-dollar) is fixed, for example, and
declines." Oil prices, the demand for the dinar for accounting purposes will certainly fall, and the
dinar will be exchanged for oil in larger quantities and the demand for (petrodinar) will be less, and vice versa will happen.” He pointed out that
“any deviation between the oil prices (petrodollars) and the exchange rate (petrodinars) according to international market data will be considered a cost that requires compensation by paying lower dinars or collecting a higher dinar in the opposite case,” indicating that
“international reserve currencies are foreign currencies held by banks.” Central and international financial institutions as part of their monetary reserves.
These currencies are used in international transactions and debt settlement between countries, and are considered a standard for international payments and facilitation of global trade. He explained that
"Russia suffered a lot when it priced its exported oil in rubles (the petroruble) and the
ruble is a non-reserve currency and committed to a value for the ruble that was denominated in gold initially to ensure the stability of oil revenues.
Here (the petroruble) underwent two asset cycles at the same time (which complicated the scene of selling oil in local currency). And the stability of the value of petroruble). He pointed out that
"the first cycle: It results from the impact of the so-called gold assets cycle and its impact on the value of (petroruble) or the local currency denominated in the exported oil.
As for the second: it is the oil assets cycle, and its impact on the value of a barrel of oil outside the global price and its reflection on oil revenues." Priced in that currency. He stressed that
"the two cycles are asset cycles that are interconnected and simultaneously reflect on the value of (the currency priced with exported oil, such as the petroruble), which made pricing Russian oil in the ruble as a local currency and according to the data of the global oil market, a very complex issue." He added,
“The principle of using the dinar as a local currency in international oil exchanges (the petrodinar) is not without many challenges, which must consider these potential challenges with careful care, especially the issue of the flexibility or stability of the value of the (petrodinar) itself to change and fluctuation,
especially as we are in In the oil market, we are not price makers, but rather price takers.” He noted that
"the global oil market will control the fluctuation of the local currency (the petrodinar),
in addition to the importance of its international recognition, and the
financial infrastructure necessary to support such operations of the (petrodinar).
In other words, the strategy of relying the value of the currency directly on oil exports may make the value of the currency The local market is vulnerable to fluctuations in the global market. Saleh continued,
“The proposal to sell oil in dinars as a local currency must take into account an important theory in global trade called The Law of One Price, which is an economic concept that assumes that the same commodity must be sold at the same prices in all markets when it is expressed.” About the price in the same currency, provided that there are no transportation costs or trade barriers such as customs tariffs, etc., as
the single price theory here is the basis for many economic and commercial models, and the
theory is based on the assumption that markets operate efficiently. He continued by saying:
“The single price theory is also the basis for understanding the pricing mechanism in foreign exchange markets, as the theory seeks to explain that currency exchange rates always reflect the difference in prices between two countries, and
when oil is priced in dollars (petrodollars), the exchange rate should be The dinar (the petro-dinar) is compatible with oil prices without fluctuation, and it is also compatible at the same time with the (petro-dollar) and stably as well.
These are two issues that are difficult to control because they are among the international external factors that determine the value of the local currency so that it operates regularly and has stable price compatibility with the oil market and international foreign currencies. "At the same time."
He continued:
“For example, if a barrel of oil is sold in the United States at a price of 76 dollars and in Europe at a price of 72 euros, the single price theory predicts that, taking into account the exchange rate between the dollar and the euro, the price of a barrel of oil should be equal after adjusting The currency, provided that there are no transportation costs or trade barriers, and that
this matter requires that the value of oil sold to Europe and America correspond to the fluctuation of currency prices in order to ensure the work of the single price theory.
Thus, the adoption of the local currency in global trade is an extremely complex issue to ensure the stability of the agreement.
Oil prices are valued at the value of the Iraqi dinar (petrodinar), especially in a fixed exchange system (exchange rate), unless discounts are granted or differences are charged in oil marketing operations or floating (petrodinar), and
then the oil marketing company "SOMO", for example, will play a dual role in both policies. Oil and cash, whether in the field of oil pricing or pricing the exchange rate of the oil dinar (petro dinar).” He continued by saying:
“The strength and stability of the Iraqi dinar will remain linked to the factors of real growth and diversification in the national economy,
in addition to achieving an appropriate surplus in the current account of the balance of payments, and
linking the national currency to a basket of foreign currencies that provides stability in the value of the dinar itself.
In light of the above, the inclusion of Mechanisms for stabilizing the dinar exchange rate in a single rentier economy using the oil dinar exclusively, which is an economic trend with ambiguous results and very ambiguous, in addition to entering the (petro dinar) system, which to ensure its stability requires risks (the single price theory referred to above) in light of the fluctuations of the cycle of oil assets. And a unilateral rentier economy, not to mention the lack of knowledge of the approved exchange system (the petrodinar).
Will it be a fixed exchange system supported by foreign reserves, or will it be a flexible exchange system in which the (petrodinar) changes with the change in oil prices?
These are paths that have no answers on the ground and are very vague indeed.".
https://www.ina.iq/215025--.html
