Ali Abdul Rahim al-Aboudi is a researcher specializing in political economy
Synopsis:
The reliance of Iraqi decision-makers on a single function to sell hard currencies according to a fixed exchange rate led to the formation of a fallacy idea that oil revenues will maintain the sustainability of oil prices, which led to the currency window becoming a function of oil rents.
The currency window had a negative impact on the economic transformation in Iraq, as a temporary measure, it was more useful to reduce its impact on monetary policy in Iraq.
After 2003, the monetary policy in Iraq emerged from the mantle of authority and government decisions that did not take into account the independence of monetary policy.
Monetary policy is the family of the commodity structure of exports and imports, as it is significantly distorted, oil exports constitute (99.7%) of total exports in Iraq, while Iraq imports everything from foodstuffs to manufactured goods and services from abroad.
The Iraqi state’s possession of the source of dollars due to the sale of oil made it an option for the government to provide dollars to the private sector, as the dollar is always available whenever there is a demand for it to satisfy the needs of the private sector, and then enable it to satisfy most of the domestic demand.
The currency sale window is one of the easy tools used in countries in transition, and with the passage of (20) years since the currency auction, this method still exists in Iraq.
The currency sale window was able to satisfy the needs of the private sector for foreign currency, maintain the stability of the Iraqi dinar exchange rate, and reduce the gap between the official market and the parallel market.
The US Treasury is the main official responsible for maintaining the value of the dollar globally, and it has followed the new procedures in applying a new more stringent mechanism in the process of selling the dollar; because of the fraud operations that were conducted on the instructions followed by the Central Bank of Iraq from local dealers.
Introduction
Delving into the monetary policy space carries a lot of difficulties, and at the same time pulls with it a lot of variables related to the interrelated and complementary relationship with the objectives of monetary policy, as monetary policy is an integral part of the macroeconomic policy of the country, and thus monetary policy in Iraq is formulated and crystallized according to macroeconomic data and its changes, and this was further strengthened after the change that occurred in 2003, as monetary policy in Iraq turned to independence, and was able to get out from under the cloak of government decisions that did not believe in the independence of monetary policy, which prompted the management of the Monetary Authority 2003(the central bank) By adopting a new policy to achieve its desired goals, and one of its most important new tools is the foreign currency sale window (currency auction), and with the criticism and suspicions swirling around this window, the central bank has been able to achieve its most important goals, namely maintaining market stability, reining in inflation, and maintaining the purchasing power of the Iraqi dinar, but the matter has become different now, as with the passage of about two months from the formation of the new government, specifically with the beginning of 2023, things began to get out of control of the currency sale window, which caused a loss of confidence in the local currency, and the instability of markets of all kinds more general.
Accordingly, this paper will discuss-according to the inductive approach-the mechanisms of the foreign currency sale window, its role since 2003, and the most important reasons that led to its weak control and inability to control the market at present. But before we delve into this, and for the picture to become clear, we must know some facts about the nature of the Iraqi economy.
