Central Bank sold $300 billion in past years to preserve local currency

Azzaman, February 5, 2015

The Central Bank of Iraq has spent $300 billion in the past few years as part of its daily auctions in which up to $180 were offered almost every working day.

The sale which made it possible for local banks and the public to change their dinars to dollars has helped stabilize the value of the dinar against the dollar. But the government, in response to a parliamentary condition to approve the budget, is restricting the sale of dollars to the public.

“The parliament has imposed this paragraph because dealing with hard cash (in this way) had become a way for money laundering and corruption,” said Abduljabbar Abdulkhaliq, member of the parliamentary commission on finance. “The volume of hard cash sold in the past years (by Central Bank) amounted to more than $300 billion.

Abdulkhaliq said most of the hard cash auctioned by the Central Bank was smuggled abroad and Iraq received no goods or investments in return.

The auction was believed to be a source of stability for the local currency vis-à-vis the dollar.

With the plunge in oil prices and the country having problems closing a widening budget deficit, the government has ruled that the bank is no longer under obligation to meet hard cash demand at the official rate.

The ruling was part of conditions the parliament imposed for approving the budget.

But financial analysts in the capital Baghdad say the measure would certainly weaken the dinar against the dollar. The reduction in dollar volume offered at the auction has already resulted in the dinar losing value.

“The rise in the dollar against the dinar is due to a budgetary ruling that compels the Central Bank to limit its sales of hard cash,” said Manaf al-Saigh, a financial expert. “The limitation will lead to the emergence of black where traders and capitalists will turn and where hard cash will be offered at a high price resulting in higher prices.”

The government, which imposed the restriction, disagrees.

“The current rise in the value of the dollar against the dinar in local markets is merely a bubble and is mainly due to speculators,” said government spokesman Mudhir Saleh.

The parliament, which made limiting the amount of dollars offered for sale a condition for approving the budget, stood firmly by its stand.

“The fall in the value of the local currency may occur but it will only be temporary,” said Abdulkhaliq.