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Monetary policy is one of the most important tools used by countries to deal with economic problems, whether in terms of growth, unemployment, poverty, inflation and monetary stability, and there is no distinction between economic and monetary stability, as economic stability is linked to economic policy as a whole
The finances of the state, the structure of the economy and the productivity of its sectors are different from monetary stability, which aims at balancing the exchange rate, secure levels of inflation and increased rates of economic growth through monetary policy instruments, and is, of course, conducive to economic stability if The economic sectors ' response to monetary instrument variables, as the central Bank of Iraq Law No. 56 of 2004 affirms that one of the central bank's main objectives is to achieve monetary stability, and as a result of the real sector's failure to respond to monetary policy variables, this reflects imbalances Structural in the Iraqi economy.
After 2003, the Iraqi economy practiced the tools of transformation towards a market economy, and this has certain principles and rules adhered to by countries, and monetary policy used the most influential instruments in the exchange rate, which is the currency window in balancing demand and supply, which depends heavily on oil revenues, Public finances depend on (89%) From public revenues as in the budget of 2019 and more in previous budgets, and the oil sector acquires more than (60%) Of gross domestic product (GDP), including structural imbalances in public finances first, and in economic Sectors II.
These imbalances result in economic and monetary instability, so it can be argued that the money supply is an internal variable of fiscal policy (which we always confirm) as long as the Treasury is responsible for selling the dollar to the central bank, and therefore will be the controller By offering money by reducing or increasing public spending, and every rise in budget deficits increases the cash supply because public finances use the tool of public debt (internal and external) to meet budget needs, which leads to inflationary waves that push monetary policy to fill The Currency window is the most influential tool due to low interest rate flexibility in the banking system as a result of the separation of the monetary and real sector.
Monetary policy has exercised the nominal fixed exchange rate type for monetary stability due to the imbalances in the economy, and statistical data from the central bank's statistics and Research service show that the exchange rate for the years (2015-2018) has reached its upper limit within this period ( 1190) dinars per dollar, while the minimum (1180) is JD per dollar, and for the parallel market price the upper limit (1281) was JD per dollar, while the minimum Amount (1215) was JD per dollar.
The foreign currency reserve is a cover for the local currency and this ensures its stability and development if it stays within the standard limits, and the data indicates that the index of reserves is moving towards safety according to international standards and covers more than (6) months for imports in case of lack of oil revenues, and thus The shocks faced by Iraq, including the so-called double shock in 2014, of sharply falling oil prices on the one hand, and the military onslaught against ISIS, on the other, have necessitated the central bank's intervention to stabilize and meet the financing needs for financial shock. And military indirectly through the marketing of public securities.
The reserves are not frozen but are used in the management of currency and foreign cash investments, as well as providing security for the national currency, if the demand for the dollar does not meet an equal offer, it means that it is one of the signs of the collapse of the currency, so note that the central bank is keen to cover Domestic demand and demand for import, and after 2015 he used a package of actions aimed at reducing the gap between the official and parallel prices.
When the central bank sells the dollar, it aims to preserve the value of the currency, as it does not trade as much as activating its instruments of stabilization, and international standards stipulate that the difference between the official bank price and the parallel rate (2%) is not increased.
We have noticed that the teams arrived in 2013 to more than (8%) This is a serious indicator that threatened the currency back then, but now we notice that monetary policy has been able to achieve a rapprochement between the official and parallel exchange rates and universally acceptable difference according to the agreement signed by Iraq which stated that the difference (2%), at the official exchange rate for the year (1190) Dinars per dollar in the parallel market rate (1200) dinars per dollar, this means reducing the gap to less than (2%), it also means monetary authority confirmed the need to reduce the gap as a result of its commitment to Central Bank Stabilization Act first, raising the value of the local currency which Could benefit the citizen when purchasing goods and services most goods are imported and undervalued dollar.
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