Shrinking the exchange rate gap between the official and parallel market in the past and present: greater stability with less sales

by **Ponee** Fri Mar 23, 2018 8:45 pm

Shrinking the exchange rate gap between the official and parallel market in the past and present: greater stability with less sales

It is no secret to specialists that the sale window of the foreign currency in the Central Bank of Iraq is one of the most important instruments of monetary policy in Iraq (Open Market Operations) started its work at the end of 2004 to sterilize the surplus liquidity and sterilization of the balance of payments financing in order to maintain the stability of the currency exchange rate Which followed the stability of the general level of prices. For 2004-2008, the Central Bank followed the de facto practice of pegging the peg, while the de facto peg of the period (2009 to date) followed the nominal dollar of the Nominal Anchor Cash flow.

This period coincided with different exchange gaps between the dinar exchange rate in its official and parallel markets, and these gaps widen and shrink according to several factors, the most important of which are:

Foreign currency sales coverage ratio of total foreign currency demand (supply coverage of the required).

The nature of sales in the window (cash, remittances, documentary credits) The increase in cash sales reduces the exchange gap relatively, due to the intensity of business dealings with a neighboring country composed of the banking system.

The instructions of the sale window of foreign currency and the overlap of the supervisory procedures between the governmental institutions with the work closely related to the window of sale of foreign currency (border crossings, the tax department) and the use of official documents issued by these departments are basic requirements by the Iraqi Central in the past years to meet requests for buying the dollar from the window selling currency And a promise of banks' obligation to pay their tax and customs obligations.

BY HUSSEIN ATWAN

- POSTED ON 22/03/2018

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