Central Bank of Iraq has New plans for the Iraqi Dinar in 2016
There are several websites that one can go to get information about the Iraqi dinar. Before you begin, you should have an understanding and knowledge of what is happening with the Iraqi dinar currency and the Central Bank of Iraq (or better known as the CBI.)
Iraq Military Operations and the Central Bank
When military operations first began in Iraq, in March 2003, there was no set plan in play for the Iraqi economy. The Coalition Provisional Authority (CPA), along with the Iraqi interim government, created a new Iraqi dinar currency on 15 October 2003 and ended on 15 January 2004. The Iraqi government plan was to distribute 4.5 trillion new Iraqi dinars in a one for one exchange throughout the country. The money supply has increased to about 40 trillion banknotes on deposit and in circulation since 2004. You can retrieve this information directly from the CBI website.
Iraq Central Bank sends a courier to the KRG
Earlier this month, the Central Bank of Iraq (CBI) made an announcement that it would be cutting all ties to the local Central Bank branches in Erbil and Sulaimaniyeh. When the CBI made the decision it made sure that the Kurdistan Regional Government (KRG) understood what the Central bank was saying. The CBI sent a special courier to the KRG government who caught a late flight out of the Baghdad International Airport (BIAP) to Erbil. Upon arrival, he gave the letter to an unidentified official waiting at the KRG government office. The CBI cut all administrative, organizational and financial ties with both branches. The CBI courier had a few more points as well. The Erbil and Sulaymaniyah branch would now report to the Finance Ministry of the Kurdistan Regional Government. The Central Bank no longer recognizes the Iraqi dinars and U.S. Dollars in deposits at the two branches. After the Central Bank courier had delivered the news, KRG officials set up meetings on how they were going to move forward without any support from the Baghdad Central Bank. The news travelled fast. Every local and foreign banker who had deposits in both of those branches were scrambling to think of the best way to get their deposits out. This was before the KRG could come up with a scheme to keep their deposits a little longer. The KRG is three months in arrears and deeply in debt. The Turkish bankers thought that if they had any problems getting their deposit back, maybe they could ask the Turkish military positioned in northern Iraq to assist them.
New capital requirements for private banks deadline of June 2016
The local Baghdad bankers are always in the know compared to other banks outside of Baghdad. The private bankers in Baghdad learned that the Central bank would be imposing new capital requirements. The new amounts will be so large that you could possibly see banks start closing their doors. The last day for the increase in capital requirements will be June 2016. The Central Bank will be making the announcement soon.
Iraqi dinar to devalue in 2016
It is getting very complex and stressful for the Central Banking staff. The signs are there when you see the top economic advisor to the Iraq, Prime Minister Mr. Mudher Saleh, this week call a devaluation of the Iraqi dinar an “adjustment.” Mr. Saleh worked under Dr. Sinan Al-Shabibi, the former Central Bank governor, and knew that Dr. Shabibi would have called the recent change a devaluation. Or possibly it was a deliberate downward adjustment. Mr. Saleh is still disgruntled that Dr. Shabibi left him in Baghdad (since Nov 2012) while he (Shabibi) continues to live the good life in Switzerland.
The Iraqi Prime Minister, Haider al-Abadi, recently just returned from an important meeting with the Central Bank and other government finance officials. The meeting was to discuss what to do about the weak Iraqi dinar currency in 2016. Al-Abadi is not pleased with the status of the country’s very weak currency. The people are exchanging dinar to the dollars daily. The government officials and the CBI banking staff know that they will not be able to defend the currency peg to the U.S. dollar. A bank official stood up in the meeting and advised everyone in the meeting to inform PM al-Abadi of the 2016 plan. The daily currency auctions are creating a lot of wealth for people in and out of the government. The currency auctions are cashing out about $180 million dollars or more a day. If the foreign reserves are $58 billion dollars, it won’t take long to deplete the foreign exchange reserves. The banking official at the meeting was very forthright in his reporting. If the currency auctions were totaling $5 billion per month, the foreign reserves would be gone in 12 months. The CBI is selling dollars as fast as they can during the auctions, and its common knowledge.
The banks in Dubai are fully aware of the devaluation that came in December 2015. They reported it in their banking reports in August 2015.
Banking staff member gives the projection for 2016
A banking staff member in the meeting said that they will be making an additional adjustment or devaluation of the Iraqi dinar currency by 10% in 2016. Several members in the meeting choked on their tea when the banking staff made that announcement. I’m quite sure it was no surprise. The Central Bank governor wanted the exchange rate to be at IQD 1195 in 2015. The Central Bank governor is projecting the Iraqi dinar exchange rate to be at IQD 1304 by the end of 2016.
The Iraqi Minister of Finance was highly upset that the Iraqi government had to back out of the $2 billion Eurobond issuances in October 2015. That would have helped in shortening the deficit gap. The reason the Iraq government was forced to back out was the higher interest rate required by the market. The government did not like the high interest rate.
The Iraqi government is doing all it can to acquire funds for the 2016 budget. The Iraqi government is looking at acquiring external loans from International Monetary Fund (IMF), World Bank, Islamic Development Bank, Special Drawing Rights -SDR, Japan International Cooperation Agency and Qatar National Bank. No vote has been made yet on the Iraq 2016 federal budget. The Iraqi parliament is still in negotiations and with luck, will come to a consensus soon.
FYI: The funds have been exhausted from the Development Fund for Iraq (DFI).
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