Iraqis In The Midst Of Exchange Rate Fluctuations: Why Do We Need The Dollar?


Iraqis In The Midst Of Exchange Rate Fluctuations: Why Do We Need The Dollar?

03/13/2024 Al-Mada/ Zulfiqar Yusuf 

Most Iraqis have been trying for a long time to find out why the Iraqi dinar collapsed against the US dollar, while many of them wondered about Iraq’s need for this currency, which has come to control all economic transactions in the country, creating markets that control the exchange rate.

Although Iraq is moving to end the phenomenon of dollarization by preventing dealing in foreign currency in the local market, many citizens complain that their lives have been affected by the dollar and its fluctuation, wondering why it is linked to their economic life to such a large degree.

Citizen Qahtan Raad (43 years old) explains that “trade has become completely and closely linked to the dollar and its exchange rate in the local market.” He stressed, “We as consumers have been suffering for years due to fluctuations in the hard currency exchange rate in the country.”

Raad added to (Al-Mada), “Employees’ salaries are in Iraqi dinars, while consumer goods are in US dollars, and this makes us wonder, what is the reason for the existence of this currency that eats away at the bones of Iraq year after year to control its economy?”

The beginning

Economist Duraid Shaker Al-Anazi says, “The pound sterling was the prevailing currency before World War II, and Britain was the leader and its fleet was plowing the seas. The pound sterling had an undisputed and acceptable global economic power.

However, World War II, and after the trillions of losses that the world endured as a result of this war, It is a war of civilized countries, in which approximately 70 million citizens were killed, in addition to millions of homes and factories destroyed. It included the entire European continent, along with Great Britain as a Commonwealth country, and even included China and Japan.

One of the distant countries that the war did not reach was the United States of America. As it was not the site of war in both the First and Second World Wars, Britain emerged as exhausted as Europe, and the Soviet Union represented an economic power, but it was not effective.

America’s opportunity

Duraid added in his interview with (Al Mada), that “Europe began to move towards the Soviet Union, the most recent of which were Greece and Italy, so the US Secretary of State was forced to propose a Marshall Plan to support countries that seemed to have taken a direction to be with the Soviet Union, and they met and revived a new currency, which is the dollar, to become A prevailing currency, next to which is the pound sterling, which was prevalent for decades,

And although we rely on the dollar now due to international pressures and global measurements, the pound sterling at that time was pegged with the currency of every country.

Until the time of our exit with the July 14 revolution, the Iraqi dinar was collapsing much more than the collapse of the sterling pound because it Directly linked to it, the dollar occupied first place in the world and policies began to manipulate the economy, finance, and loans.

Global organizations such as the World Bank and the International Monetary Fund were established, and these organizations relied on the dollar in the process of lending, financing, investment, and other economic names.

Pointing out, “This process gave the dollar politicians in the dark basements unlimited economic power with which they relied on high rates of conspiracy operations, as the dollar did not leave a respectable paper currency, and this issue shaped foreign and internal economic policies with countries.”

Dollar float

The economist continues, “The dollar went through its biggest crisis when the dollar was floated by Johnson & Johnson, as through the dollar you could buy gold from the world’s banks.” He added, “French President Charles de Gaulle at the time requested an amount of one billion dollars by exchanging it for gold.

At that time, there was an undeclared war between America and France over the leadership and leadership of NATO, so upon request there was a process of floating the dollar, and this was a devastating blow to the dollar currency, as it “It began to fluctuate and collapse significantly, in addition to the repercussions on the global economy.”

Al-Enezi continues, “After this collapse, the currencies of the world, the global economy, and economic diversification began to increase, and exchange became common and through local currencies and the currencies of neighboring countries, and China and India became active at that time, which are considered the two largest productive and consuming countries, but their currencies at that time were not strong, and at the end of the eighties, the dollar began to weaken.”

 Its weight in the market was a result of the Soviet alliance with China and Japan, and now, with the same continuity, the euro appeared to us, fighting the dollar and reducing its value, so that the world turned towards the American currency again.

But now, the strongest confrontation in the role is the (BRICS) group, which is about to create a currency to replace the dollar, but this The group is currently meeting for the purpose of issuing this currency.”

 He stressed, “The dollar is a currency that must be needed for a long time because the global economy and monetary institutions have not found an alternative to it, as they control interest rates and inflation.

The strangest thing is that the United States of America is the most indebted country in the world, but the economic power of the dollar still prevails until now.”

The dollar prevails

While the economic expert, Nabil Al-Marsoumi, discussed the plan for foreign transfers using a basket of currencies and its impact on addressing the dollar crisis in Iraq, during a post on his Facebook page, which Al-Mada viewed; He said:

“In the context of researching new measures to control the large discrepancy in the exchange rate of the dollar against the dinar between the official and parallel markets, the Central Bank of Iraq announced the opening of transfer channels in various currencies, including the Emirati dirham, the Turkish lira, the Indian rupee, and the euro for the purpose of facilitating and accelerating financial transactions.”

 In theory, it will reduce import costs and protect exchange rates inside Iraq from the risks of fluctuation,” indicating that “there is caution that this mechanism will leave its effects on the Iraqi economy, which will face the risk of rising prices of foreign goods and commodities directly linked to the rise and fall in global dollar prices,

As this decision He will face the challenges of the lack of Chinese currency and other currencies in Iraqi banks, which means that the goods that Iraq will buy from China and other countries will be calculated in their currency, but their value will be paid in dollars, because Iraqi banks do not have enough foreign currencies to settle their commercial transactions.

The Central Bank has previously decided Dealing directly in trade exchanges with China in the Chinese yuan instead of the dollar.

Currency basket

Al-Marsoumi continued: “Although Iraq began diversifying its cash reserves six years ago, the dollar prevails because oil revenues are in dollars, and it only has a few of the currencies mentioned, as Iraq today is trying to restore the value of the dinar through a strategy that is now being followed by other official banks in the Middle East.” .

He explained, “This strategy includes relying on a basket of currencies, as the authorities seek to provide other foreign currencies for commercial transactions in addition to the US dollar. It is known that many countries have begun taking the same steps that the Central Bank of Iraq is taking, and others have already begun implementing them, as Saudi Arabia issued a decision that includes obtaining… On the Chinese yuan instead of the dollar in exchange for oil sold to China, while Egypt decided to replace guarantee bonds with the yuan instead of the dollar, before Israel followed suit, which also announced the use of the Chinese yuan alongside the Canadian and Australian dollars as a direct alternative to the US dollar.

He continued, “As long as oil is priced in dollars and as long as oil exports dominate Iraqi exports in light of the almost complete disappearance of non-oil exports, it becomes impossible for Iraq to liberate itself from the US dollar, as Iraq ultimately needs the dollar to obtain other currencies, and therefore Iraq’s reliance on… “It will not change anything about the yuan and other currencies to finance its foreign trade with China and other countries, and it will remain captive to the dollar.”

He pointed out that “it is uncertain whether adopting a basket of currencies in commercial transactions between Iraq and certain other countries will help overcome the risks of the exchange rate problem, which means that the issue is related to controlling dollar smuggling more than other measures that will save the country’s national economy.” And avoid any serious financial repercussions.

It is noteworthy that the Central Bank of Iraq decided, in December of the year 2020, to adjust the exchange rate of the US dollar against the Iraqi dinar, as the purchase price of the dollar from the Ministry of Finance reached 1,450 dinars, while its selling price to banks was 1,460 dinars per dollar, while the selling price to the citizen was 1470 dinars per dollar.